Exercises & problems - chapter 25

***Sure-Bilt Construction Company is considering selling excess machinery with a book value of $279,700 (original cost of $398,200 less accumulated depreciation of $118,500) for $277,400, less a 5% brokerage commission. Alternatively, the machinery can be leased to another company for a total of $285,400 for five years, after which it is expected to have no residual value. During the period of the lease, Sure-Bilt Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $24,700.

a. Prepare a differential analysis, dated May 25 to determine whether Sure-Bilt should lease (Alternative 1) or sell (Alternative 2) the machinery. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

*** A condensed income statement by product line for Crown Beverage Inc. indicated the following for Royal Cola for the past year:

Sales	$237,700
Cost of goods sold	109,000
Gross profit	$128,700
Operating expenses	146,000
Loss from operations	$(17,300)

It is estimated that 16% of the cost of goods sold represents fixed factory overhead costs and that 21% of the operating expenses are fixed. Since Royal Cola is only one of many products, the fixed costs will not be materially affected if the product is discontinued.

a. Prepare a differential analysis, dated March 3, to determine whether Royal Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter zero "0". Use a minus sign to indicate a loss.

***Country Jeans Co. has an annual plant capacity of 66,400 units, and current production is 46,900 units. Monthly fixed costs are $39,200, and variable costs are $25 per unit. The present selling price is $34 per unit. On November 12 of the current year, the company received an offer from Miller Company for 16,200 units of the product at $29 each. Miller Company will market the units in a foreign country under its own brand name. The additional business is not expected to affect the domestic selling price or quantity of sales of Country Jeans Co.

a. Prepare a differential analysis dated November 12 on whether to reject (Alternative 1) or accept (Alternative 2) the Miller order. If an amount is zero, enter zero "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

c. What is the minimum price per unit that would produce a positive contribution margin? Round your answer to two decimal places $_____

Differential Analysis Lease Machinery (Alt. 1) or Sell Machinery (Alt. 2) May 25 Lease Machinery Sell Machinery Differential Effect on Income (Alternative 1) (Alternative 2) (Alternative 2) Revenues Costs Income (Loss) b. On the basis of the data presented, would it be advisable to lease or sell the machinery? Explain. The net from selling is $ Differential Analysis Continue Royal Cola (Alt. 1) or Discontinue Royal Cola (Alt. 2) January 21 Continue Royal Discontinue Royal Differential Effect on Income Cola (Alternative 1) Cola (Alternative 2) (Alternative 2) Revenues Costs: Variable cost of goods sold Variable operating expenses Fixed costs Income (Loss) b. Should Star Cola be retained? Explain. As indicated by the differential analysis in part (A), the income would by $ if the product is discontinued. Differential Analysis Reject Order (Alt. 1) or Accept Order (Alt. 2) November 12 Reject Accept Order Order (Alternative 1) (Alternative 2) Differential Effect on Income (Alternative 2) Revenues Costs: Variable manufacturing costs Income (Loss)