Consider the following production and cost data for two products, X and Y:

	Product X	Product Y
Contribution margin per unit	$27.00	$20.00
Machine hours needed per unit	3 hours	2 hours

The company has 16,000 machine hours available each period, and there is unlimited demand for each product. What is the largest possible total contribution margin that can be realized each period?

$144,000

$152,000

$160,000

$176,000

Fillip Corporation makes 4,200 units of part U13 each year. This part is used in one of the company's products. The company's Accounting Department reports the following costs of producing the part at this level of activity:

	Per Unit
Direct materials	$6.60
Direct labor	$4.80
Variable manufacturing overhead	$7.20
Supervisor's salary	$2.90
Depreciation of special equipment	$8.60
Allocated general overhead	$7.00

An outside supplier has offered to make and sell the part to the company for $22.60 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents the fixed costs of the entire company. If the outside supplier's offer were accepted, only $3,100 of these allocated general overhead costs would be avoided. In addition, the space used to produce part U13 would be used to make more of one of the company's other products, generating an additional segment margin of $13,200 per year for that product.

What would be the impact on the company's overall net operating income of buying part U13 from the outside supplier?

Net operating income would increase by $13,200 per year.

Net operating income would decline by $47,880 per year.

Net operating income would decline by $78,120 per year.

Net operating income would increase by $11,680 per year.

The Rodgers Company makes 29,000 units of a certain component each year for use in one of its products. The cost per unit for the component at this level of activity is as follows:

Direct materials	$9.20
Direct labor	$14.00
Variable manufacturing overhead	$10.80
Fixed manufacturing overhead	$7.50

Rodgers has received an offer from an outside supplier who is willing to provide 29,000 units of this component each year at a price of $37.00 per component. Assume that direct labor is a variable cost. None of the fixed manufacturing overhead would be avoidable if this component were purchased from an outside supplier.

Assume that if the component is purchased from the outside supplier, $35,100 of annual fixed manufacturing overhead would be avoided and the facilities now being used to make the component would be rented to another company for $64,800 per year. If Rodgers chooses to buy the component from the outside supplier under these circumstances, then the impact on annual net operating income due to accepting the offer would be:

$12,900 decrease.

$12,900 increase.

$51,900 decrease.

$51,900 increase.

Kramer Company makes 4,600 units per year of a part called an axial tap for use in one of its products. Data concerning the unit production costs of the axial tap follow:

Direct materials		$	41
Direct labor			16
Variable manufacturing overhead			14
Fixed manufacturing overhead			20
Total manufacturing cost per unit		$	91

An outside supplier has offered to sell Kramer Company all of the axial taps it requires. If Kramer Company decided to discontinue making the axial taps, 40% of the above fixed manufacturing overhead costs could be avoided. Assume that direct labor is a variable cost.

Required:

a1.	Assume Kramer Company has no alternative use for the facilities presently devoted to the production of the axial taps. If the outside supplier offers to sell the axial taps for $89 each, calculate the total cost for making the axial taps.

Total cost

$

a2.

Should Kramer Company accept the offer?

	Yes
	No

b.

Assume that Kramer Company could use the facilities presently devoted to the production of the axial taps to expand production of another product that would yield an additional contribution margin of $92,000 annually. What is the maximum price Kramer Company should be willing to pay the outside supplier for axial taps?

Maximum acceptable price

$

Answer rating: 100% (QA)

Ans 1160000 Product X Product Y Contribution margin per unit 1 2700 2000 Machinehours needed per uni... View the full answer