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Item 5

Item 5 16.66 points

Benson Corporation makes and sells state-of-the-art electronics products. One of its segments produces The Math Machine, an inexpensive calculator. The companys chief accountant recently prepared the following income statement showing annual revenues and expenses associated with the segments operating activities. The relevant range for the production and sale of the calculators is between 35,000 and 67,000 units per year.

Revenue (38,000 units $9)	$	342,000
Unit-level variable costs
Materials cost (38,000 $3)		(114,000	)
Labor cost (38,000 $1)		(38,000	)
Manufacturing overhead (38,000 $0.60)		(22,800	)
Shipping and handling (38,000 $0.33)		(12,540	)
Sales commissions (38,000 $1)		(38,000	)
Contribution margin		116,660
Fixed expenses
Advertising costs		(23,000	)
Salary of production supervisor		(63,000	)
Allocated companywide facility-level expenses		(76,000	)
Net loss	$	(45,340	)

Required

1. a. A large discount store has approached the owner of Benson about buying 6,000 calculators. It would replace The Math Machines label with its own logo to avoid affecting Bensons existing customers. Because the offer was made directly to the owner, no sales commissions on the transaction would be involved, but the discount store is willing to pay only $5.20 per calculator. Calculate the contribution margin from the special order. Based on quantitative factors alone, should Benson accept the special order?

2. b-1. Benson has an opportunity to buy the 38,000 calculators it currently makes from a reliable competing manufacturer for $5.90 each. The product meets Bensons quality standards. Benson could continue to use its own logo, advertising program, and sales force to distribute the products. Should Benson buy the calculators or continue to make them?

3. b-2. Calculate the total cost for Benson to make and buy the 38,000 calculators.

4. b-3. Should Benson buy the calculators or continue to make them, if the volume of sales were increased to 67,000 units?

5. c. Because the calculator division is currently operating at a loss, should it be eliminated from the companys operations? Support your answer with appropriate computations. Specifically, by what amount would the segments elimination increase or decrease profitability?

Contribution margin (loss)
Should Benson accept the special order?

	Make	Buy
Total relevant cost

Contribution to profit (loss)
Should it be eliminated from the companys operations?

please explain thank you