Question

16. Jackson County Senior Services is a nonprofit organization devoted to providing essential services to seniors who live in their own homes within the Jackson County area. Three services are provided for seniors—home nursing, Meals On Wheels, and housekeeping. Data on revenue and expenses for the past year follow:

		Total		Home Nursing		Meals On Wheels		House- keeping
Revenues	$	930,000	$	269,000	$	407,000	$	254,000
Variable expenses		462,000		114,000		196,000		152,000
Contribution margin		468,000		155,000		211,000		102,000
Fixed expenses:
Depreciation		69,300		8,500		40,600		20,200
Liability insurance		44,400		20,800		7,800		15,800
Program administrators’ salaries		114,300		40,200		38,400		35,700
General administrative overhead*		186,000		53,800		81,400		50,800
Total fixed expenses		414,000		123,300		168,200		122,500
Net operating income (loss)	$	54,000	$	31,700	$	42,800	$	(20,500)

*Allocated on the basis of program revenues.

The head administrator of Jackson County Senior Services, Judith Miyama, considers last year’s net operating income of $54,000 to be unsatisfactory; therefore, she is considering the possibility of discontinuing the housekeeping program.

The depreciation in housekeeping is for a small van that is used to carry the housekeepers and their equipment from job to job. If the program were discontinued, the van would be donated to a charitable organization. None of the general administrative overhead would be avoided if the housekeeping program were dropped, but the liability insurance and the salary of the program administrator would be avoided.

Required:

1-a. What is the financial advantage (disadvantage) of discontinuing the Housekeeping program?

1-b. Should the Housekeeping program be discontinued?

2-a. Prepare a properly formatted segmented income statement.

2-b. Would a segmented income statement format be more useful to management in assessing the long-run financial viability of the various services?

17. Come-Clean Corporation produces a variety of cleaning compounds and solutions for both industrial and household use. While most of its products are processed independently, a few are related, such as the company’s Grit 337 and its Sparkle silver polish.

Grit 337 is a coarse cleaning powder with many industrial uses. It costs $1.20 a pound to make, and it has a selling price of $6.80 a pound. A small portion of the annual production of Grit 337 is retained in the factory for further processing. It is combined with several other ingredients to form a paste that is marketed as Sparkle silver polish. The silver polish sells for $5.00 per jar.

This further processing requires one-fourth pound of Grit 337 per jar of silver polish. The additional direct variable costs involved in the processing of a jar of silver polish are:

Other ingredients	$	0.50
Direct labor		1.40
Total direct cost	$	1.90

Overhead costs associated with processing the silver polish are:

Variable manufacturing overhead cost		25	% of direct labor cost
Fixed manufacturing overhead cost (per month)
Production supervisor	$	3,100
Depreciation of mixing equipment	$	1,600

The production supervisor has no duties other than to oversee production of the silver polish. The mixing equipment is special-purpose equipment acquired specifically to produce the silver polish. It can produce up to 2,000 jars of polish per month. Its resale value is negligible and it does not wear out through use.

Advertising costs for the silver polish total $4,900 per month. Variable selling costs associated with the silver polish are 5% of sales.

Due to a recent decline in the demand for silver polish, the company is wondering whether its continued production is advisable. The sales manager feels that it would be more profitable to sell all of the Grit 337 as a cleaning powder.

Required:

1. How much incremental revenue does the company earn per jar of polish by further processing Grit 337 rather than selling it as a cleaning powder? (Round your answer to 2 decimal places.)

2. How much incremental contribution margin does the company earn per jar of polish by further processing Grit 337 rather than selling it as a cleaning powder? (Round your intermediate calculations and final answer to 2 decimal places.)

3. How many jars of silver polish must be sold each month to exactly offset the avoidable fixed costs incurred to produce and sell the polish? (Round your intermediate calculations to 2 decimal places.)

4. If the company sells 8,900 jars of polish, what is the financial advantage (disadvantage) of choosing to further process Grit 337 rather than selling is as a cleaning powder? (Enter any "disadvantages" as a negative value. Round your intermediate calculations to 2 decimal places.)

5. If the company sells 10,200 jars of polish, what is the financial advantage (disadvantage) of choosing to further process Grit 337 rather than selling is as a cleaning powder? (Enter any "disadvantages" as a negative value. Round your intermediate calculations to 2 decimal places.)

18.

Delta Company produces a single product. The cost of producing and selling a single unit of this product at the company’s normal activity level of 105,600 units per year is:

Direct materials	$	2.20
Direct labor	$	4.00
Variable manufacturing overhead	$	0.90
Fixed manufacturing overhead	$	4.55
Variable selling and administrative expenses	$	1.70
Fixed selling and administrative expenses	$	3.00

The normal selling price is $25.00 per unit. The company’s capacity is 120,000 units per year. An order has been received from a mail-order house for 1,200 units at a special price of $22.00 per unit. This order would not affect regular sales or the company’s total fixed costs.

Required:

1. What is the financial advantage (disadvantage) of accepting the special order?

2. As a separate matter from the special order, assume the company’s inventory includes 1,000 units of this product that were produced last year and that are inferior to the current model. The units must be sold through regular channels at reduced prices. What unit cost is relevant for establishing a minimum selling price for these units?

19.

Futura Company purchases the 72,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $10.80 per unit. Due to a reduction in output, the company now has idle capacity that could be used to produce the starters rather than buying them from an outside supplier. However, the company’s chief engineer is opposed to making the starters because the production cost per unit is $11.40 as shown below:

	Per Unit			Total
Direct materials	$	5.00
Direct labor		2.80
Supervision		1.50		$	108,000
Depreciation		1.10		$	79,200
Variable manufacturing overhead		0.50
Rent		0.50		$	36,000
Total product cost	$	11.40

If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $108,000) to oversee production. However, the company has sufficient idle tools and machinery such that no new equipment would have to be purchased. The rent charge above is based on space utilized in the plant. The total rent on the plant is $87,000 per period. Depreciation is due to obsolescence rather than wear and tear.

Required:

What is the financial advantage (disadvantage) of making the 72,000 starters instead of buying them from an outside supplier?

Answer 1

Sorry to say only one question allowed per post

				Current	house	income
				total	keeping	increase or
					Dropped	(decrease)
	Revenues			930,000	676000	-254,000
	Variable expenses			462,000	310000	152,000
	Conribution margin			468,000	366000	-102,000
	Fixed expenses:
	Depreciation			69,300	69,300	0
	liability insurance			44,400	28600	15,800
	program administrator's salaries			114,300	78600	35,700
	General administrative overhead			186,000	186,000	0
	total fixed expense			414,000	362,500	51,500
	Net operating income(loss)			54,000	3,500	-50,500
	financial disavantage =			-50,500
1-b)	No
2-a)			Segmented income statement
				total	home	meals on	House
					nursing	wheels	keeping
	Revenues			930,000	269,000	407,000	254,000
	Variable expenses			462,000	114,000	196,000	152,000
	Conribution margin			468,000	155,000	211,000	102,000
	Traceable fixed expense
	Depreciation			69,300	8,500	40,600	20,200
	liability insurance			44,400	20,800	7,800	15,800
	program administrators salaries			114,300	40,200	38,400	35,700
	total traceable fixed expense			228,000	69,500	86,800	71,700
	program segement margin			240,000	85,500	124,200	30,300
	General administrative overhead			186,000
	net operating income (loss)			54,000
2-b)	yes