Question

Dakota Coffee Company produces Columbian coffee in batches of 7,500 pounds. The standard quantity of materials required in the process is 7,500 pounds, which cost $6.00 per pound. Columbian coffee can be sold without further processing for $9.80 per pound. Columbian coffee can also be processed further to yield Decaf Columbian, which can be sold for $11.60 per pound. The processing into Decaf Columbian requires additional processing costs of $6,300 per batch. The additional processing will also cause a 5% loss of product due to evaporation.

a. Prepare a differential analysis dated December 11 on whether to sell regular Columbian (Alternative 1) or process further into Decaf Columbian (Alternative 2). If required, use a minus sign to indicate a loss.

Differential Analysis
Sell Regular (Alt. 1) or Process Further into Decaf (Alt. 2)
December 11
	Sell Regular (Alternative 1)	Process Further into Decaf (Alternative 2)	Differential Effects (Alternative 2)
Revenues	$fill in the blank 09ed2f04f013053_1	$fill in the blank 09ed2f04f013053_2	$fill in the blank 09ed2f04f013053_3
Costs	fill in the blank 09ed2f04f013053_4	fill in the blank 09ed2f04f013053_5	fill in the blank 09ed2f04f013053_6
Profit (Loss)	$fill in the blank 09ed2f04f013053_7	$fill in the blank 09ed2f04f013053_8	$fill in the blank 09ed2f04f013053_9

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Somerset Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $61 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 45% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows:

Direct materials	$24
Direct labor	22
Factory overhead (45% of direct labor)	9.9
Total cost per unit	$55.9

If Somerset Computer Company manufactures the carrying cases, fixed factory overhead costs will not increase and variable factory overhead costs associated with the cases are expected to be 15% of the direct labor costs.

a. Prepare a differential analysis dated April 30 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case. If required, round your answers to two decimal places. If an amount is zero, enter "0".

Differential Analysis
Make Carrying Case (Alt. 1) or Buy Carrying Case (Alt. 2)
April 30
	Make Carrying Case (Alternative 1)	Buy Carrying Case (Alternative 2)	Differential Effects (Alternative 2)
Unit costs:
Purchase price	$fill in the blank a9389ffe9f9cfe3_1	$fill in the blank a9389ffe9f9cfe3_2	$fill in the blank a9389ffe9f9cfe3_3
Direct materials	fill in the blank a9389ffe9f9cfe3_4	fill in the blank a9389ffe9f9cfe3_5	fill in the blank a9389ffe9f9cfe3_6
Direct labor	fill in the blank a9389ffe9f9cfe3_7	fill in the blank a9389ffe9f9cfe3_8	fill in the blank a9389ffe9f9cfe3_9
Variable factory overhead	fill in the blank a9389ffe9f9cfe3_10	fill in the blank a9389ffe9f9cfe3_11	fill in the blank a9389ffe9f9cfe3_12
Fixed factory overhead	fill in the blank a9389ffe9f9cfe3_13	fill in the blank a9389ffe9f9cfe3_14	fill in the blank a9389ffe9f9cfe3_15
Total unit costs	$fill in the blank a9389ffe9f9cfe3_16	$fill in the blank a9389ffe9f9cfe3_17	$fill in the blank a9389ffe9f9cfe3_18

Answer 1

Differential Analysis- Dakota Coffee
Sell Regular (Alt. 1) or Process Further into Decaf (Alt. 2)
11-Dec
	Sell Regular	Process	Differential
(Alternative 1)	Further into Decaf	Effects
Regular	(Alternative 2)	(Alternative 2)
Revenues	$45,000.00	$69,825.00	$24,825.00
	(7500*6)	(7500*95%*9.80)
Costs		$6,300.00	-$6,300.00
Profit (Loss)	$45,000.00	$63,525.00	$18,525.00

Yes company should sell after further processing

Differential Analysis
Make Carrying Case (Alt. 1) or Buy Carrying Case (Alt. 2)
30-Apr
	Make	Buy
Carrying	Carrying	Differential
Case	Case	Effects
(Alternative 1)	(Alternative 2)	(Alternative 2)
Unit costs:
Purchase price		$61.00	-$61.00
Direct materials	$24.00		$24.00
Direct labor	$22.00		$22.00
Variable factory overhead	$1.49		$1.49
Fixed factory overhead (9.9*85%)	$8.42	$8.42
Total unit costs	$55.90	$69.42	-$13.52

No company should not go with buy option