Question

6) The following information relates to a product produced by Creamer Company:

Direct materials	$20.6
Direct labor	17.4
Variable overhead	35.96
Fixed overhead	15.14

Fixed selling costs are $444,780 per year. Although production capacity is 600,000 units per year, the company expects to produce only 400,000 units next year. The product normally sells for $200 each. A customer has offered to buy 60,000 units for $120 each.

If the firm produces the special order, what is the effect on income?

Report gains as a positive number. Report losses as a negative number (with a minus sign).

7) Rexeleg Company manufactures a product with the following costs per unit at the expected production of 40,000 units:

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Direct materials	$4.29
Direct labor	7.25
Variable overhead	6.38
Fixed overhead	7.74

​

The company has the capacity to produce 50,000 units. The product regularly sells for $50. A wholesaler has offered to pay $43 per unit for 3,000 units.

Assume that Rexeleg has excess capacity. ​If the firm chooses to accept the special order the effect on operating income would be?

Report gains as a positive number. Report losses as a negative number (with a minus sign).

8) Stars Manufacturing Company produces Products A1, B2, C3, and D4 through a joint process. The joint costs amount to $200,000.

			If Processed Further
	Units	Sales Value	Additional	Sales
Product	Produced	at Split-Off	Costs	Value
A1	3,000	$10,000	$2,500	$15,000
B2	5,000	30,000	3,000	35,000
C3	4,000	20,000	4,000	25,000
D4	6,000	40,000	6,000	45,000

If Product B2 is processed further, profits will increase (decrease) by how much?

Report gains as a positive number. Report losses as a negative number (with a minus sign).

9) Begonia uses part 87A in the production of color printers. Unit manufacturing costs for part 87A are:

​

Direct materials	$9.33
Direct labor	2.33
Variable overhead	2.97
Fixed overhead	5.05

​Begonia uses 130,000 units of 87A per year. Benzyl Company has offered to sell Begonia 130,000 units of 87A per year for $18. Fixed overhead is unavoidable.

If Begonia makes the part how much do they gain (or lose) in total over buying the part?

Report gains as a positive number. Report losses as a negative number (with a minus sign).

10) Memuru Company has the following information pertaining to its two divisions for last year:

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​	Division X	Division Y
Variable selling and admin. expenses	$92,640	$91,988
Direct fixed expenses	42,735	56,694
Sales	580,109	516,969
Direct fixed selling and admin. expenses	60,347	70,999
Variable expenses	68,224	73,306
Common expenses	30,900	30,900

What is the segment margin for Division Y?

Answer 1

Q.6	If the firm produces the special order, effect on income would be
	Particulars		Amount ($)
	Sales Revenue on special order	=60,000 Units * $ 120	72,00,000
	Less. Relevant Cost
	Direct Materials	=60,000 Units * $ 20.6	12,36,000
	Direct Labour	=60,000 Units * $ 17.4	10,44,000
	Variable Overhead	=60,000 Units * $ 35.96	21,57,600
	Total Relevant Costs		44,37,600
	Income (Sales - Relevant Cost)		27,62,400
Q.7	If the firm produces the special order, effect on income would be
	Particulars		Amount ($)
	Sales Revenue on special order	=3,000 Units * $ 43	1,29,000
	Less. Relevant Cost
	Direct Materials	=3,000 Units * $ 4.29	12,870
	Direct Labour	=3,000 Units * $ 7.25	21,750
	Variable Overhead	=3,000 Units * $ 6.38	19,140
	Total Relevant Costs		53,760
	Income (Sales - Relevant Cost)		75,240
Q.8	If Product B2 is processed further, profits will increase
			Amount ($)
	Additional Sales if we process further	=$35000 - $ 30000	5,000
	Less. Additional Costs on processing further		3,000
	Increase in profits		2,000
Q.9	If Begonia makes the part how much do they gain (or lose) in total over buying the part
	Buying Cost (A)	=(130,000 Units * $18	23,40,000
	Making Cost (Relevant) - (B)	=(130,000 Units*($ 9.33+ $ 2.33 + $ 2.97))	19,01,900
	(Direct Material - $9.33 + Direct Labour - $2.33 +Variable Overhead - $2.97)
	Gain (A-B)		4,38,100
	Fixed Cost is unavavoidable, not require to consider in decision making
Q.10	Segment margin for Division Y
	Particulars	Amount ($)
	Sales	5,16,969
	Less. Variable Costs
	Variable expenses	73,306
	Variable selling and admin. expenses	91,988
	Contribution	3,51,675
	Less. Direct fixed expenses	56,694
	Less. Direct fixed selling and admin. Expenses	70,999
	Segment Margin	2,23,982