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In: Accounting

1. O’Brien Enterprises produces giant stuffed bears. Each bear consists of $12 of variable costs and...

1. O’Brien Enterprises produces giant stuffed bears. Each bear consists of $12 of variable costs and $9 of fixed costs and sells for $45. A wholesaler offers to buy 8,000 bears for $14 each, of which O’Brien Enterprises has the capacity to produce. O’Brien will incur extra shipping costs of $1 per bear.
Should O’Brien Enterprises accept the special order? Please show your calculations to support your decision.
2. O’Brien Corporation currently manufactures 3,000 staplers annually for use in its main product. The costs per stapler are as follows:
Direct materials $ 3.00
Direct labor 7.00
Variable overhead 4.00
Fixed overhead 7.00
Total $21.00
Gallup Company has contacted O’Brien Corporation with an offer to sell them 3,000 staplers for $18.00 each. $5 of the fixed overhead per unit is unavoidable.
Should O’Brien Corporation continue to make the staplers or accept the offer to buy? Please show your calculations to support your decision.
3. O’Brien Farms, Inc. produces a crop of chickens at a total cost of $66,000. The production generates 60,000 chickens which can be sold for $1 each to a slaughtering company or the chickens can be slaughtered in house and then sold for $2.75 each. It costs $65,000 more to turn the annual chicken crop into chicken meat.
If O’Brien Farms slaughters the chickens, determine how much incremental profit or loss it would report. What should O’Brien Farms do?

Solutions

Expert Solution

Q1.
Incremental analysis
Incremental generated (8000*14) 112000
Less: Incremental cost
Variable cost (8000*12) 96000
Additional shipping cost (8000*1) 8000
Incremental income from order 8000
Yes, the order must be acceptetd
Q2.
Differential analysis
Make Buy Differential
effect on income
Cost of purchase 0 54000 -54000
material 9000 0 9000
labour 21000 0 21000
Variable OH 12000 0 12000
Fixed Oh 21000 15000 6000
Net icnome 63000 69000 -6000
The company shall make the product
Q3.
Incremental analysis:
incremental revenue generated:
Revenue from chicken crop (60000*1) 60000
Revenue from slaughetered (60000*2.75) 165000
incremental revenue generated: 105000
Incremental cost 65000
Incremental income 40000
The Chicken must be slaughters and net financial advantage is $ 40000.

ekkarill92 answered 2 years ago
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