Bon Jovi Company manufactures 10,000 units of wheel sets for use in its annual production. Costs...

Bon Jovi Company manufactures 10,000 units of wheel sets for use in its annual production. Costs are as follows: direct materials are $20,000; direct labor is $55,000; variable overhead is $45,000; and fixed overhead is $70,000. Bowie Company has offered to sell Bon Jovi 10,000 units of wheel sets for $17 per unit. If RSW accepts the offer, some of the facilities presently used to manufacture wheel sets could be rented to a third party at an annual rental of $20,000. Additionally, $4 per unit of the fixed overhead applied to wheel sets would be totally eliminated.

Requirements: Prepare an incremental analysis schedule to demonstrate if Bon Jovi should accept Bowie's offer.

Expert Solution

Incremental analysis schedule

Cost to Bon Jovi Company
PARTICULARS	Total Cost	Per Unit = (Total Cost /Total no of Units)
DIRECT MATERIALS	$ 20,000.00	$20000/$10000 = $2
DIRECT LABOR	$ 55,000.00	$55000/$10000 = $5.5
VARIABLE OVERHEAD	$ 45,000.00	$45000/$10000 = $4.5
FIXED OVERHEAD	$ 70,000.00	$4
Total	$ 1,90,000.00	$16

Fixed Overhead Remain Constant	=	$16*$1000 = $160000
	=	$190000-$160000 = $30000

PARTICULARS	Bon Jovi	Bowie Company
DIRECT MATERIALS	$ 20,000.00	-
DIRECT LABOR	$ 55,000.00	-
VARIABLE OVERHEAD	$ 45,000.00	-
FIXED OVERHEAD [Variable]	$ 40,000.00	-
FIXED OVERHEAD [Constant]	$ 30,000.00	$ 30,000.00
Purchased [10000*17]	-	$ 1,70,000.00
Total Cost	$ 1,90,000.00	$ 2,00,000.00
Less : Rental Income	-	$ 20,000.00
Net Cost	$ 1,90,000.00	$ 1,80,000.00

Offer from Bowie Company should be accepted as there is benefit of $10000.

ekkarill92 answered 1 year ago

Kirkland Company manufactures a part for use in its production. When 10,000 units are produced, the...

Kirkland Company manufactures a part for use in its production. When 10,000 units are produced, the costs per unit are: Direct materials $1.20 Direct manufacturing labor 6.00 Variable manufacturing support 2.40 Fixed manufacturing support 3.20 Total $12.80 Mike Company has offered to sell to Kirkland Company 10,000 units of the part for $13.00 per unit. The plant facilities could be used to manufacture another item at a savings of $20,000 if Kirkland accepts the offer. In addition, $2.00 per unit...

Kand Company manufactures components for use in its production of mini lasers. When 10,000 items of...

Kand Company manufactures components for use in its production of mini lasers. When 10,000 items of component X77 are produced, the costs per unit are: Direct materials $0.75 Direct manufacturing labour $2.75 Variable manufacturing overhead $1.25 Fixed manufacturing overhead $1.60 Total Costs $6.35 Lee Company has offered to sell to Kand Company 10,000 units of X77 for $6.00 per unit. In addition, $1.00 per unit of fixed manufacturing overhead on the original item would be eliminated. Required: 1a. Compare Make vs...

Kobe Company manufactures a part for its production cycle. The costs per unit for 20,000 units...

Kobe Company manufactures a part for its production cycle. The costs per unit for 20,000 units of this part are as follows: Direct materials $15 Direct labor 12 Variable factory overhead 20 Unavoidable fixed factory overhead 18 Total cost $65 The Kobe Company has been approached by a supplier who claims it can sell Kobe Company 20,000 units of the same part for $940,000. Required: a. Assuming there is no alternative use for the facilities, how much money would Kobe...

Car Parts Company manufactures a part for use in its production of automobiles. The costs per...

Car Parts Company manufactures a part for use in its production of automobiles. The costs per unit when 10,000 items are produced are: Direct materials $6 Direct manufacturing labour 30 Variable manufacturing overhead 12 Fixed manufacturing overhead 16 Total $64 Auto Company has offered to sell to Car Parts Company 10,000 units of the part for $60. The plant facilities could be used to manufacture another part at a savings of $90,000 if Car Parts accepts the offer. In addition,...

Bernard Company manufactures 20,000 units of part A8 each year for use on its production line....

Bernard Company manufactures 20,000 units of part A8 each year for use on its production line. The cost per unit of A8 is as follows: Direct materials $2.40 Direct manufacturing labor 3.50 Variable manufacturing overhead 1.60 Fixed manufacturing overhead 5.00 Total cost per part $12.50 An outside supplier has offered to sell 20,000 units of part A8 each year to Bernard Company for $14.25 per part. If Bernard Company accepts this offer, the facilities now being used to manufacture part...

Rey Company manufactures 4,000 units of processor chip, A-772, each year for use on its production...

Rey Company manufactures 4,000 units of processor chip, A-772, each year for use on its production line. At this level of activity, the cost per unit of processor chip is: Direct materials $ 354 Direct labor 20 Variable manufacturing overhead 8 Fixed manufacturing overhead 80 Total manufacturing cost per unit $ 462 An outside supplier has offered to sell all units of processor chip the company requires. If the company decided to discontinue making processor chip, 5% of the above...

Martinez Company’s relevant range of production is 7,500 units to 12,500 units. When it produces and sells 10,000 units, its average costs per unit are as follows:

Martinez Company’s relevant range of production is 7,500 units to 12,500 units. When it producesand sells 10,000 units, its average costs per unit are as follows:Average Costper UnitDirect materials . . . . . . . . . . . . . . . . . . . . . . . . $6.00Direct labor . . . . . . . . . . . . . . . . . . . . . . . . ....

"MBACO" has an annual production capacityof 20,000 units. The costs associated with the production and sale...

"MBACO" has an annual production capacityof 20,000 units. The costs associated with the production and sale of the company's product are given below: LE 15 Per unit variable manufacturing cost 100,000 Total fixed manufacturing cost 5 Per unit variable selling and administrative cost (Include sales commissions 10% of sales) 60,000 Total fixed selling and administrative cost The company presently is selling 15,000 units annually at a selling price of LE 30 each. A special order has been received from a...

Every year Bridgeport Industries manufactures 6,200 units of part 231 for use in its production cycle....

Every year Bridgeport Industries manufactures 6,200 units of part 231 for use in its production cycle. The per unit costs of part 231 are as follows: Direct materials $ 5 Direct labor 12 Variable manufacturing overhead 6 Fixed manufacturing overhead 10 Total $33 Flintrock, Inc., has offered to sell 6,200 units of part 231 to Bridgeport for $34 per unit. If Bridgeport accepts Flintrock’s offer, its freed-up facilities could be used to earn $12,800 in contribution margin by manufacturing part...

Every year Novak Industries manufactures 7,400 units of part 231 for use in its production cycle....

Every year Novak Industries manufactures 7,400 units of part 231 for use in its production cycle. The per unit costs of part 231 are as follows: Direct materials $ 3 Direct labor 9 Variable manufacturing overhead 7 Fixed manufacturing overhead 10 Total $29 Flintrock, Inc., has offered to sell 7,400 units of part 231 to Novak for $32 per unit. If Novak accepts Flintrock’s offer, its freed-up facilities could be used to earn $12,900 in contribution margin by manufacturing part...

Question