Baldwin Golf Supply produces a golf bag that sells for $200. Although the company's production capacity is
Question:
Baldwin Golf Supply produces a golf bag that sells for $200. Although the company's production capacity is 5,000 bags per year, currently only 4,000 bags are produced and sold. Production costs for 4,000 bags are as follows:
Unit level material cost $400,000
Unit level labor cost $200,000
Unit level overhead $50,000
Installation cost at lot level ($2,500 per lot of 500 units) $20,000
Product: Tier cost per year $15,000
Allocated Facility Level Cost $30,000
Golf Mart Stores has offered to purchase 1,000 golf bags as a one-time special purchase at a price of $175 per bag.
Required:
1) Prepare a quantitative analysis indicating whether to accept the special request.
2) What qualitative factors should be considered in this special order decision?
Problem 2 – Subcontracting
MZN Company currently produces a component that it uses to make some of its products. The company has calculated the following costs to manufacture the part:
Unit level cost
Materials $20
work 28
Overhead 2
Allocated Facility Level Cost 10
Cost Total $60
MZN is considering outsourcing the component. A supplier has offered to sell the component to MZN for $54 each. MZN needs 10,000 units each year. If MZN subcontracts the component, it can use the facility to manufacture another product that would generate a contribution margin of $60,000 per year.
Required:
Should MZN outsource the component? Support your answer with the appropriate calculations.
Problem 3 - Segment removal
Kogan Company has two divisions whose most recent financial statements are shown below:
commercial residential
division division
10,000 2,000
unit sales
Sales $800,000 $200,000
Less: cost of goods sold:
Production cost at unit level 350,000 120,000
Depreciation of production equipment 150,000 50,000
Gross margin $300,000 $30,000
Less: operating expenses:
Unit level sales and administration 80,000 20,000
Installation cost at corporate level (fixed) 25,000 15,000
Net income (loss) $195,000 ($5,000)
Required:
1) Calculate the impact on results if the Residential Division is eliminated.
2) Do you recommend that Kogan remove the Residential Division?
Problem 4: asset replacement
The Graham Company is trying to decide whether to replace a packaging machine it uses to package salsa into single-serving-size packets. The following information is provided:
Current machine:
Original cost $13,000
Accumulated amortization 8,000
Annual operating cost 4,000
Current market value 2,000
Salvage value within five years 500
new machine
Cost $8,000
Annual operating costs 2,500
Salvage value at the end of five years 500
Required:
Calculate the total advantage or disadvantage of purchasing the new machine.
Expert Answer:
Quantitative analysis To determine whether to accept the special order we need to compare the incremental revenue from the special order with the incremental costs of producing and selling the additio... View the full answer
