Task One (Keep or Drop a Product Line)

The most recent monthly income statement for Benner Stores is given below:

		Total	Store A	Store B
	Sales	$1,000,000	$400,000	$600,000
	Variable expenses	580,000	160,000	420,000
	Contribution margin	420,000	240,000	180,000
	Traceable fixed expenses	300,000	100,000	200,000
	Store segment margin	120,000	140,000	(20,000)
	Common fixed expenses	50,000	20,000	30,000
	Net operating income	$70,000	$120,000	$(50,000)

Due to its poor showing, consideration is being given to closing Store B. Studies show that if Store B is closed, one-fourth of its traceable fixed expenses will continue unchanged. The studies also show that closing Store B would result in a 10 percent decrease in sales in Store A. The company allocates common fixed expenses to the stores on the basis of sales dollars.

Required:

Determine the monthly financial advantage (disadvantage) of closing Store B.

Task Two (Make or Buy Decisions)

Kirsten Corporation makes 100,000 units per year of a part called a B345 gasket for use in one of its products. Data concerning the unit production costs of the B345 gasket follow:

	Direct materials	$0.15
	Direct labor	0.10
	Variable manufacturing overhead	0.13
	Fixed manufacturing overhead	0.24
	Total manufacturing cost per unit	$0.62

An outside supplier has offered to sell Kirsten Corporation all of the B345 gaskets it requires. If Kirsten Corporation decided to discontinue making the B345 gaskets, 25% of the above fixed manufacturing overhead costs could be avoided. Assume that direct labor is a variable cost.

Required:

a. Assume Kirsten Corporation has no alternative use for the facilities presently devoted to production of the B345 gaskets. If the outside supplier offers to sell the gaskets for $0.46 each, should Kirsten Corporation accept the offer? Fully support your answer with appropriate calculations.

b. Assume that Kirsten Corporation could use the facilities presently devoted to production of the B345 gaskets to expand production of another product that would yield an additional contribution margin of $10,000 annually. What is the maximum price Kirsten Corporation should be willing to pay the outside supplier for B345 gaskets?

Task Three (Special Order Decisions)

Anglen Co. manufactures and sells trophies for winners of athletic and other events. Its manufacturing plant has the capacity to produce 18,000 trophies each month; current monthly production is 14,400 trophies. The company normally charges $103 per trophy. Cost data for the current level of production are shown below:

	Variable costs:
	Direct materials	$460,800
	Direct labor	$316,800
	Selling and administrative	$15,840
	Fixed costs:
	Manufacturing	$404,640
	Selling and administrative	$74,880

The company has just received a special one-time order for 900 trophies at $48 each. For this particular order, no variable selling and administrative costs would be incurred. This order would also have no effect on fixed costs. Assume that direct labor is a variable cost.

Required:

Should the company accept this special order? Why?

Task Four (Constrained Resources)

Garson, Inc. produces three products. Data concerning the selling prices and unit costs of the three products appear below:

		Product
		F	G	H
	Selling price	$50	$80	$70
	Variable costs	$40	$50	$55
	Fixed costs	$15	$20	$12
	Milling machine time (minutes)	4	2	5

Fixed costs are applied to the products on the basis of direct labor hours.

Demand for the three products exceeds the company's productive capacity. The milling machine is the constraint, with only 2,400 minutes of milling machine time available this week.

Required:

a. Given the milling machine constraint, which product should be emphasized? Support your answer with appropriate calculations.

b. Assuming that there is still unfilled demand for the product that the company should emphasize in part (a) above, up to how much should the company be willing to pay for an additional hour of milling machine time?

Task Five (Sell or Further Process)

Ibsen Company makes two products from a common input. Joint processing costs up to the split-off point total $43,200 a year. The company allocates these costs to the joint products on the basis of their total sales values at the split-off point. Each product may be sold at the split-off point or processed further. Data concerning these products appear below:

		Product X	Product Y	Total
	Allocated joint processing costs	$25,600	$17,600	$43,200
	Sales value at split-off point	$32,000	$22,000	$54,000
	Costs of further processing	$15,900	$17,400	$33,300
	Sales value after further processing	$47,500	$40,800	$88,300

Required:

a. What is financial advantage (disadvantage) of processing Product X beyond the split-off point?

b. What is financial advantage (disadvantage) of processing Product Y beyond the split-off point?

c. What is the minimum amount the company should accept for Product X if it is to be sold at the split-off point?

d. What is the minimum amount the company should accept for Product Y if it is to be sold at the split-off point?