Identify a decision from your personal experience that fitsunder one of the categories of differential analysis presented inthe chapter (make or buy, sell or process further, accept or rejectadditional business, continue or discontinue). Describe thealternative courses of action and the information gathered that wasrelevant to your decision.
Identify a decision from your personal experience that fitsunder one of the categories of differential analysis presented inthe chapter (make or buy, sell or process further, accept or rejectadditional business, continue or discontinue). Describe thealternative courses of action and the information gathered that wasrelevant to your decision.
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Related questions
Homestead Jeans Co.has an annual plant capacity of 65,500 units, and currentproduction is 43,000 units. Monthly fixed costs are $38,000, andvariable costs are $25 per unit. The present selling price is $37per unit. On November 12 of the current year, the company receivedan offer from Dawkins Company for 13,600 units of the product at$27 each. Dawkins Company will market the units in a foreigncountry under its own brand name. The additional business is notexpected to affect the domestic selling price or quantity of salesof Homestead Jeans Co.
a.Prepare a differential analysis dated November 12 on whether toreject (Alternative 1) or accept (Alternative 2) the Dawkins order.If an amount is zero, enter "0". For those boxes in which you mustenter subtracted or negative numbers use a minus sign.
Differential Analysis | |||
Reject Order (Alt. 1) or Accept Order (Alt.2) | |||
November 12 | |||
Reject Order(Alternative 1) | Accept Order(Alternative 2) | Differential Effecton Income (Alternative 2) | |
Revenues | $ | $ | $ |
Costs: | |||
Variable manufacturingcosts | |||
Income (Loss) | $ | $ | $ |
b.Having unused capacity available is to this decision. Thedifferential revenue is than the differential cost. Thus, acceptingthis additional business will result in a net .
c.What is the minimum price per unit that would produce a positivecontribution margin? Round your answer to two decimal places.
Calgary Lumber Companyincurs a cost of $392 per hundred board feet (hbf) in processingcertain ârough-cutâ lumber, which it sells for $546 per hbf. Analternative is to produce a âfinished cutâ at a total processingcost of $529 per hbf, which can be sold for $754 per hbf.
a.Prepare a differential analysis dated March 15, on whether to sellrough-cut lumber (Alternative 1) or process further intofinished-cut lumber (Alternative 2).
Differential Analysis | |||
Sell Rough-Cut (Alt. 1) or Process Further intoFinished-Cut (Alt. 2) | |||
March 15 | |||
Sell Rough-Cut (Alternative 1) | Process Further into Finished-Cut (Alternative 2) | Differential Effect on Income (Alternative 2) | |
Revenues, per unit | $ | $ | $ |
Costs, per unit | |||
Income (Loss), per unit | $ | $ | $ |
P7.57B
Prepare an incremental analysis for the decision whether to sell or process materials further.
14(LO 4) The following information is for a company that produces four types of microprocessors using the same production process. The common costs of these products, up to the split-off point, are $550,000. Common costs are allocated based on the quantity of output. The following information includes additional processing costs, the selling price of each product at the split-off point, and the selling price of each product after further processing:
Microprocessor | Number of Units Produced | Selling Price at Split-Off Point | Selling Price after Further Processing | Additional Costs for Further Processing |
---|---|---|---|---|
1 | 3,000 | $10.00 | $15.00 | $14,800 |
2 | 4,000 | 9.50 | 12.25 | 8,500 |
3 | 2,500 | 11.00 | 15.70 | 12,000 |
4 | 500 | 7.75 | 10.25 | 1,250 |
Instructions
a.
Assuming only one product can be processed further, determine which one the company should choose. Briefly explain why.
Product 2
b.
Referring to your answer in part (a), identify which information is relevant to the decision to process this product further.
c.
If common costs up to the split-off point were allocated on the basis of the market values at the split-off point, would your decision in part (a) be different? Briefly explain why.
Sell or Process Further
Rise Nâ Shine Coffee Company produces Columbian coffee in batches of 6,000 pounds. The standard quantity of materials required in the process is 6,000 pounds, which cost $6 per pound. Columbian coffee can be sold without further processing for $8.4 per pound. Columbian coffee can also be processed further to yield Decaf Columbian, which can be sold for $10 per pound. The processing into Decaf Columbian requires additional processing costs of $8,950 per batch. The additional processing will also cause a 5% loss of product due to evaporation.
a. Prepare a differential analysis dated October 6 on whether to sell regular Columbian (Alternative 1) or process further into Decaf Columbian (Alternative 2).
Differential Analysis | |||
Sell Regular Columbian (Alt. 1) or Process Further into Decaf Columbian (Alt. 2) | |||
October 6 | |||
Sell Regular Columbian (Alternative 1) | Process Further into Decaf Columbian (Alternative 2) | Differential Effect on Income (Alternative 2) | |
Revenues | $ | $ | $ |
Costs | |||
Income (Loss) | $ | $ | $ |
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a. For both products, subtract the costs from the revenue per batch. Determine the differential effect on income of the revenues, costs, and income (loss) by subtracting alternative 2 from alternative 1.
Learning Objective 1.
b. Should Rise Nâ Shine sell Columbian coffee or process further and sell Decaf Columbian?
Sell Columbian
c. Determine the price of Decaf Columbian that would cause neither an advantage nor a disadvantage for processing further and selling Decaf Columbian. Round your answer to two decimal places.
$ per pound
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