Question

11 Comprehensive problem including special order, outsourcing,and segment elimination decisions LO 13-2, 13-3, 13-4

Lang Corporation makes and sells state-of-the-art electronicsproducts. One of its segments produces The Math Machine, aninexpensive calculator. The company’s chief accountant recentlyprepared the following income statement showing annual revenues andexpenses associated with the segment’s operating activities. Therelevant range for the production and sale of the calculators isbetween 34,000 and 74,000 units per year.

Revenue (47,000units × $11)	$	517,000
Unit-level variablecosts
Materials cost (47,000 × $3)		(141,000	)
Labor cost (47,000 × $2)		(94,000	)
Manufacturing overhead (47,000 ×$0.30)		(14,100	)
Shipping and handling (47,000 ×$0.25)		(11,750	)
Sales commissions (47,000 × $2)		(94,000	)
Contributionmargin		162,150
Fixed expenses
Advertising costs		(31,000	)
Salary of production supervisor		(67,000	)
Allocated companywide facility-levelexpenses		(83,000	)
Net loss	$	(18,850	)

(Consider each of the requirements independently.)

Required

a-1

.

A large discount store has approached the owner of Lang aboutbuying 7,000 calculators. It would replace The Math Machine’s labelwith its own logo to avoid affecting Lang’s existing customers.Because the offer was made directly to the owner, no salescommissions on the transaction would be involved, but the discountstore is willing to pay only $5.80 per calculator. Calculate thecontribution margin from the special order. (Negativeamount should be indicated by a minus sign.)

CONTRIBUTION MARGIN(OR LOSS) ( )

Lang has an opportunity to buy the 47,000 calculators itcurrently makes from a reliable competing manufacturer for $6.50each. The product meets Lang’s quality standards. Lang couldcontinue to use its own logo, advertising program, and sales forceto distribute the products. Should Lang buy the calculators orcontinue to make them?

Calculate the total cost for Lang to make and buy the 47,000calculators.

MAKE BUY

TOTAL COST ( ) ( )

Should Lang buy the calculators or continue to make them, if thevolume of sales were increased to 74,000 units?

Calculate the contribution to profit from operating thecalculator division. (Negative amount should be indicatedby a minus sign.) CONTRIBUTION TO PROFIT (LOSS) ( )

Allocating costs among products 12 LO 12-3

Longman Construction Company expects to build three new homesduring a specific accounting period.
The estimated direct materials and labor costs are as follows.

Expected Costs	Home 1			Home 2			Home 3
Direct labor	$	70,000		$	94,000		$	187,000
Directmaterials		91,000			136,000			199,000

Assume Longman needs to allocatetwo major overhead costs ($38,610 of employee fringe benefits and$29,820 of indirect materials costs) among the three jobs.

Required

Choose an appropriate cost driver for each of the overhead costsand determine the total cost of each house. (Round"Allocation rate" to 3 decimal places.)

FRINGE BENEFITS:

HOUSE ALLOCATION RATE x WEIGHT OF BASE = ALLOCATED COST

1 ______________ x _______________ = ________________

2 ______________ x _______________ = _______________

3 ______________ x _______________ = ________________

INDIRECT MATERIALS:

A large discount store has approached the owner of Lang aboutbuying 7,000 calculators. It would replace The Math Machine’s labelwith its own logo to avoid affecting Lang’s existing customers.Because the offer was made directly to the owner, no salescommissions on the transaction would be involved, but the discountstore is willing to pay only $5.80 per calculator. Calculate thecontribution margin from the special order. (Negativeamount should be indicated by a minus sign.)

CONTRIBUTION MARGIN(OR LOSS) ( )

Lang has an opportunity to buy the 47,000 calculators itcurrently makes from a reliable competing manufacturer for $6.50each. The product meets Lang’s quality standards. Lang couldcontinue to use its own logo, advertising program, and sales forceto distribute the products. Should Lang buy the calculators orcontinue to make them?

Calculate the total cost for Lang to make and buy the 47,000calculators.

MAKE BUY

TOTAL COST ( ) ( )

Should Lang buy the calculators or continue to make them, if thevolume of sales were increased to 74,000 units?

Calculate the contribution to profit from operating thecalculator division. (Negative amount should be indicatedby a minus sign.) CONTRIBUTION TO PROFIT (LOSS) ( )

Allocating costs among products 12 LO 12-3

Longman Construction Company expects to build three new homesduring a specific accounting period.
The estimated direct materials and labor costs are as follows.

Expected Costs	Home 1			Home 2			Home 3
Direct labor	$	70,000		$	94,000		$	187,000
Directmaterials		91,000			136,000			199,000

Assume Longman needs to allocatetwo major overhead costs ($38,610 of employee fringe benefits and$29,820 of indirect materials costs) among the three jobs.

Required

Choose an appropriate cost driver for each of the overhead costsand determine the total cost of each house. (Round"Allocation rate" to 3 decimal places.)

FRINGE BENEFITS:

HOUSE ALLOCATION RATE x WEIGHT OF BASE = ALLOCATED COST

1 ______________ x _______________ = ________________

2 ______________ x _______________ = _______________

3 ______________ x _______________ = ________________

A large discount store has approached the owner of Lang aboutbuying 7,000 calculators. It would replace The Math Machine’s labelwith its own logo to avoid affecting Lang’s existing customers.Because the offer was made directly to the owner, no salescommissions on the transaction would be involved, but the discountstore is willing to pay only $5.80 per calculator. Calculate thecontribution margin from the special order. (Negativeamount should be indicated by a minus sign.)

CONTRIBUTION MARGIN(OR LOSS) ( )

Lang has an opportunity to buy the 47,000 calculators itcurrently makes from a reliable competing manufacturer for $6.50each. The product meets Lang’s quality standards. Lang couldcontinue to use its own logo, advertising program, and sales forceto distribute the products. Should Lang buy the calculators orcontinue to make them?

Calculate the total cost for Lang to make and buy the 47,000calculators.

MAKE BUY

TOTAL COST ( ) ( )

Should Lang buy the calculators or continue to make them, if thevolume of sales were increased to 74,000 units?

Calculate the contribution to profit from operating thecalculator division. (Negative amount should be indicatedby a minus sign.) CONTRIBUTION TO PROFIT (LOSS) ( )

Allocating costs among products 12 LO 12-3

Longman Construction Company expects to build three new homesduring a specific accounting period.
The estimated direct materials and labor costs are as follows.

Expected Costs	Home 1			Home 2			Home 3
Direct labor	$	70,000		$	94,000		$	187,000
Directmaterials		91,000			136,000			199,000

Assume Longman needs to allocatetwo major overhead costs ($38,610 of employee fringe benefits and$29,820 of indirect materials costs) among the three jobs.

Required

Choose an appropriate cost driver for each of the overhead costsand determine the total cost of each house. (Round"Allocation rate" to 3 decimal places.)

FRINGE BENEFITS:

HOUSE ALLOCATION RATE x WEIGHT OF BASE = ALLOCATED COST

1 ______________ x _______________ = ________________

2 ______________ x _______________ = _______________

3 ______________ x _______________ = ________________

INDIRECT MATERIALS:

A large discount store has approached the owner of Lang aboutbuying 7,000 calculators. It would replace The Math Machine’s labelwith its own logo to avoid affecting Lang’s existing customers.Because the offer was made directly to the owner, no salescommissions on the transaction would be involved, but the discountstore is willing to pay only $5.80 per calculator. Calculate thecontribution margin from the special order. (Negativeamount should be indicated by a minus sign.)

CONTRIBUTION MARGIN(OR LOSS) ( )

Lang has an opportunity to buy the 47,000 calculators itcurrently makes from a reliable competing manufacturer for $6.50each. The product meets Lang’s quality standards. Lang couldcontinue to use its own logo, advertising program, and sales forceto distribute the products. Should Lang buy the calculators orcontinue to make them?

Calculate the total cost for Lang to make and buy the 47,000calculators.

MAKE BUY

TOTAL COST ( ) ( )

Should Lang buy the calculators or continue to make them, if thevolume of sales were increased to 74,000 units?

Calculate the contribution to profit from operating thecalculator division. (Negative amount should be indicatedby a minus sign.) CONTRIBUTION TO PROFIT (LOSS) ( )

Allocating costs among products 12 LO 12-3

Longman Construction Company expects to build three new homesduring a specific accounting period.
The estimated direct materials and labor costs are as follows.

Expected Costs	Home 1			Home 2			Home 3
Direct labor	$	70,000		$	94,000		$	187,000
Directmaterials		91,000			136,000			199,000

Assume Longman needs to allocatetwo major overhead costs ($38,610 of employee fringe benefits and$29,820 of indirect materials costs) among the three jobs.

Required

Choose an appropriate cost driver for each of the overhead costsand determine the total cost of each house. (Round"Allocation rate" to 3 decimal places.)

FRINGE BENEFITS:

HOUSE ALLOCATION RATE x WEIGHT OF BASE = ALLOCATED COST

1 ______________ x _______________ = ________________

2 ______________ x _______________ = _______________

3 ______________ x _______________ = ________________

INDIRECT MATERIALS:

A large discount store has approached the owner of Lang aboutbuying 7,000 calculators. It would replace The Math Machine’s labelwith its own logo to avoid affecting Lang’s existing customers.Because the offer was made directly to the owner, no salescommissions on the transaction would be involved, but the discountstore is willing to pay only $5.80 per calculator. Calculate thecontribution margin from the special order. (Negativeamount should be indicated by a minus sign.)

CONTRIBUTION MARGIN(OR LOSS) ( )

Lang has an opportunity to buy the 47,000 calculators itcurrently makes from a reliable competing manufacturer for $6.50each. The product meets Lang’s quality standards. Lang couldcontinue to use its own logo, advertising program, and sales forceto distribute the products. Should Lang buy the calculators orcontinue to make them?

Calculate the total cost for Lang to make and buy the 47,000calculators.

MAKE BUY

TOTAL COST ( ) ( )

Should Lang buy the calculators or continue to make them, if thevolume of sales were increased to 74,000 units?

Calculate the contribution to profit from operating thecalculator division. (Negative amount should be indicatedby a minus sign.) CONTRIBUTION TO PROFIT (LOSS) ( )

Allocating costs among products 12 LO 12-3

Longman Construction Company expects to build three new homesduring a specific accounting period.
The estimated direct materials and labor costs are as follows.

Expected Costs	Home 1			Home 2			Home 3
Direct labor	$	70,000		$	94,000		$	187,000
Directmaterials		91,000			136,000			199,000

Assume Longman needs to allocatetwo major overhead costs ($38,610 of employee fringe benefits and$29,820 of indirect materials costs) among the three jobs.

Required

Choose an appropriate cost driver for each of the overhead costsand determine the total cost of each house. (Round"Allocation rate" to 3 decimal places.)

FRINGE BENEFITS:

HOUSE ALLOCATION RATE x WEIGHT OF BASE = ALLOCATED COST

1 ______________ x _______________ = ________________

2 ______________ x _______________ = _______________

3 ______________ x _______________ = ________________

A large discount store has approached the owner of Lang aboutbuying 7,000 calculators. It would replace The Math Machine’s labelwith its own logo to avoid affecting Lang’s existing customers.Because the offer was made directly to the owner, no salescommissions on the transaction would be involved, but the discountstore is willing to pay only $5.80 per calculator. Calculate thecontribution margin from the special order. (Negativeamount should be indicated by a minus sign.)

CONTRIBUTION MARGIN(OR LOSS) ( )

Lang has an opportunity to buy the 47,000 calculators itcurrently makes from a reliable competing manufacturer for $6.50each. The product meets Lang’s quality standards. Lang couldcontinue to use its own logo, advertising program, and sales forceto distribute the products. Should Lang buy the calculators orcontinue to make them?

Calculate the total cost for Lang to make and buy the 47,000calculators.

MAKE BUY

TOTAL COST ( ) ( )

Should Lang buy the calculators or continue to make them, if thevolume of sales were increased to 74,000 units?

Calculate the contribution to profit from operating thecalculator division. (Negative amount should be indicatedby a minus sign.) CONTRIBUTION TO PROFIT (LOSS) ( )

Allocating costs among products 12 LO 12-3

Longman Construction Company expects to build three new homesduring a specific accounting period.
The estimated direct materials and labor costs are as follows.

Expected Costs	Home 1			Home 2			Home 3
Direct labor	$	70,000		$	94,000		$	187,000
Directmaterials		91,000			136,000			199,000

Assume Longman needs to allocatetwo major overhead costs ($38,610 of employee fringe benefits and$29,820 of indirect materials costs) among the three jobs.

Required

Choose an appropriate cost driver for each of the overhead costsand determine the total cost of each house. (Round"Allocation rate" to 3 decimal places.)

FRINGE BENEFITS:

HOUSE ALLOCATION RATE x WEIGHT OF BASE = ALLOCATED COST

1 ______________ x _______________ = ________________

2 ______________ x _______________ = _______________

3 ______________ x _______________ = ________________

INDIRECT MATERIALS:

HOUSE ALLOCATION RATE x WEIGHT OF BASE = ALLOCATED COST

1 ________________ x _______________ = ______________

2 ________________ x _______________ = ______________

3 ________________ x _______________ = ______________

THE COST OF THE COMPONENTS TO DETERMINE THE TOTAL COST OF EACHHOUSE:

EXPECTED COSTS HOME 1 HOME 2 HOME 3 TOTAL

DIRECT LABOR ________ __________ _________ ____________

DIRECT MATERIALS _______ ___________ __________ ____________

FRINGE BENEFITS ________ ___________ _______________________

INDIRECT MATERIALS ________ ___________ _______________________

TOTAL COST _________ ___________ ___________ _____________