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A13 5 ft Of the total COGS, 20% is fixed, Of the total Operating expenses, 30% is fixed. | A | B I C | D 1 Problem 1A: Decision to Close a Product line (15: 12 + 3) 1566's? ii'ib''iT''riiE''h'dFB'F'i's'EriE'ciFil''a'bi'ihii'oh''i'ii'r'ac'i"I 111935115 """""""""""" Ihas been reporting a loss for a number of years and management is considering discontinuing the product. ,- Sales $710,000 :3 Costs of Goods Sold (COGS) 550 000 5 Gross Prot $160,000 10 Operating expenses 185,000 11 Loss from operation ($25,000) 13 Of the total COGS, 20% is xed, Of the total Operating expenses, 30% is xed. 14 The xed costs charged to Vigorita are an allocation of the total xed costs of the company and 15 therefore, cannot be eliminated even if the producted is discontinued. 1? Required: 1:3 i) Prepare a differential analysis using the table below to recommend if Vigorita should be retained (Alt.1) or discontinued (Alt. 2). 0 Differential Analysis 1 Retain (Alt. 1) or Discontinue (Alt. 2) Vigorita 2 Retain (Alt. 1) Discontinue (Alt. 2) Differential impact of Alt. 2 on income $ $ $ 4 Revenues . Costs: Variable cost of goods sold Variable operating expenses Fixed costs Income (loss) CW -..1 LO U P4 P4 P4 P4 P4 P4 P4 P4 P4 P4 in . LL: 31 ii) Do you recommend Boost Infusion to discontinue the product -Vigorita'? Explain your answer. 32 Answer: 35 Problem 13: Decision to Make or Buy (14: 12 + 2) 35 Assume that Boost Infusion Inc. received an offer from a foreign manufacturer to buy Vigorita at a cost of $55 per unit. 3? The current production costs for Boost Infusion Inc. to produce each unit of Vigorita includes: 3:3 Direct materials costs per unit $24 35 Direct labor costs per unit $13 40 Variable overhead costs $7 41 Fixed overhead costs M 42 Total cost per unit @ 43 44 If Boost Infusion buys the Vigorita from the foreign manufacturer, the xed costs cannot be avoided as they are allocated xed costs. 45 Required: 4? i) Prepare a differential analysis using the table below to recommend if Boost Infusion Inc. should produce {Alt.1) or buy (Alt. 2) Vigorita. 45 Differential Analysis 50 Make (Alt. 1) or Buy (Alt. 2) Vigorita 51 Make (Alt. 1) Buy(Alt. 1) Differential impact of Alt. 2 on income 52 $ $ $ 53 Sales price per unit\" $0 $0 $0 -.4 Unit costs: 55 Purchase price 55 Direct materials 5? Direct labor 5:3 Variable factory overhead 55 Fixed factory overhead 5!] Income (loss) :51 \"Note: Saies price per unitl information is not available and hence, entered as $0. 53 ii) Do you recommend Boost Infusion Inc. to buy the product from the foreign manufacturer? Explain your answer. 54 Answer: 4 > DA1 (E) 5 a