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Olam International Limited sources and processes agricultural products including edible nuts and spices. Assume the company recently acquired a peanut-processing company that has a normal annual capacity of 180,000 bushels and that sold 125,000 bushels last year at a price of $35 per bushel. The purpose of the acquisition is to furnish peanuts for a new peanut butter plant, which needs 75,000 bushels of peanuts per year. It has been purchasing peanuts from suppliers at the market price. Production costs per bushel of the peanut-processing company are as follows: Direct materials Direct labor Variable overhead $9 4 2 Fixed overhead at normal capacity Total 10 $25 Management is trying to decide what transfer price to use for sales from the newly acquired Peanut Division to the Peanut Butter Division. The manager of the Peanut Division argues that $35, the market price, is appropriate. The manager of the Peanut Butter Division argues that the cost price of $25 (or perhaps even less)…

Elise Carpets Inc. has just acquired a new backing division that produces a rubber backing, which it sells for $3.30 per square yard. Sales are about 1,200,000 square yards per year. Since the Backing Division has a capacity of 2,000,000 square yards per year, top management is thinking that it might be wise for the company's Tufting Division to start purchasing from the newly acquired Backing Divi- sion. The Tufting Division now purchases 600,000 square yards per year from an outside supplier at a price of $3.00 per square yard. The current price is lower than the competitive $3.30 price as a result of the large quantity discounts. The Backing Division's cost per square yard follows. Direct materials.. Direct labor.... Variable overhead.. Fixed overhead (1,200,000 level) Total cost.... $1.80 0.45 0.37 0.15 $2.77 Required a. If both divisions are to be treated as investment centers and their performance evaluated by the ROI formula, what transfer price would you recommend? Why? b. If…

Whole Foods, the world's leader in natural and organic foods, has more than 310 stores and 62,000 employees in North America and the United Kingdom. A new store is being built in San Antonio, Texas, at the Vineyard shopping center. A commercial oven for $9,618 with a 6-year life and residual value of $1,260 was purchased for the store. What is the depreciation expense in year 2 for the oven? Use the straight-line method. Depreciation expense $

Hahn Manufacturing purchases a key component of one of its products from a local supplier. The current purchase price is $1,500 per unit. Efforts to standardize parts succeeded to the point that this same component can now be used in five different products. Annual component usage should increase from 150 to 750 units. Management wonders whether it is time to make the component in-house rather than to continue buying it from the supplier. Fixed costs would increase by about $40,000 per year for the new equipment and tooling needed. The cost of raw materials and variable overhead would be about $1,100 per unit, and labor costs would be $300 per unit produced. so  Should Hahn make rather than buy?

Hahn Manufacturing purchases a key component of one of its products from a local supplier. The current purchase price is $1,500 per unit. Efforts to standardize parts succeeded to the point that this same component can now be used in five different products. Annual component usage should increase from 150 to 750 units. Management wonders whether it is time to make the component in-house rather than to continue buying it from the supplier. Fixed costs would increase by about $40,000 per year for the new equipment and tooling needed. The cost of raw materials and variable overhead would be about $1,100 per unit, and labor costs would be $300 per unit produced.  so  What other considerations might be important?

In the current year, Big Burgers, Inc., expanded its fast-food operations by opening several new stores in Texas. The company incurred the following costs in the current year: market appraisal ($50,000), consulting fees ($72,000), advertising ($47,000), and traveling to train employees ($31,000). The company is willing to incur these costs because it foresees strong customer demand in Texas for the next several years. What amount should Big Burgers report as an expense in its income statement associated with these costs?

The Windshield division of Fast Car Co. makes windshields for use in Fast Car’s Assembly division. The Windshield division incurs variable costs of $240 per windshield and has capacity to make 630,000 windshields per year. The market price is $475 per windshield. The Windshield division incurs total fixed costs of $3,050,000 per year. If the Windshield division is operating at full capacity, what transfer price should be used on transfers between the Windshield and Assembly divisions?   he Windshield division of Fast Car Co. makes windshields for use in Fast Car’s Assembly division. The Windshield division incurs variable costs of $240 per windshield and has capacity to make 630,000 windshields per year. The market price is $475 per windshield. The Windshield division incurs total fixed costs of $3,050,000 per year.If the Windshield division is operating at full capacity, what transfer price should be used on transfers between the Windshield and Assembly divisions?…

The Windshield division of Fast Car Co. makes windshields for use in Fast Car’s Assembly division. The Windshield division incurs variable costs of $200 per windshield and has capacity to make 500,000 windshields per year. The market price is $450 per windshield. The Windshield division incurs total fixed costs of $3,000,000 per year. If the Windshield division is operating at full capacity, what transfer price should be used on transfers between the Windshield and Assembly divisions?

The process-control division expects to sell 1,250 process-control units this year. From the viewpoint of Sierra Inc. as a whole, should 1,250 Xcel-chips be transferred to the process-control division to replace circuit boards? Show your computations.

Federated Manufacturing Incorporated (FMl) produces electronic components in three divisions: industrial, commercial, and consumer products. The commercial products division annually purchases 10,000 units of part 23-6711, which the industrial division produces for use in manufacturing one of its own products. The commercial division is growing rapidly; it is expanding its production and now wants to increase its purchases of part 23-6711 to 15,000 units per year. The problem is that the industrial division is at full capacity. No new investment in the industrial division has been made for some years because top management sees little future growth in its products, so its capacity is unlikely to increase soon. The commercial division can buy part 23-6711 from Advanced Micro Incorporated or from Admiral Electric, a customer of the industrial division now purchasing 650 units of part 88-461. The industrial division's sales to Admiral would not be affected by the commercial division's…

National Chemical Company manufactures a chemical compound that is sold for $53 per gallon. A new variant of the chemical has been discovered, and if the basic compound were processed into the new variant, the selling price would be $81 per gallon. National expects the market for the new compound variant to be 8,500 gallons initially and determines that processing costs to refine the basic compound into the new variant would be $136, 000. Required: What would be the effect on total profit if National produces the new compound variant? Should National produce the new compound variant?

Tiffany Cosmetics manufactures, and sells a variety of makeup and beauty products. Thecompany has come up with its own patented formula for a new anti-aging cream The companypresident wants to make sure the product is priced competitively because its purchase will alsolikely increase sales of other products. The company anticipates that it will sell 400,000 units ofthe product in the first year with the following estimated costs:Product design and licensing $ 1,000,000Direct materials 1,800,000Direct manufacturing labor 1,200,000Variable manufacturing overhead 600,000Fixed manufacturing overhead 2,000,000Fixed marketing 3,000,000The company believes that it can successfully sell the product for $38 a bottle. The company’s targetoperating income is 40% of revenue. Calculate the target full cost of producing the 400,000 units.Does the cost estimate meet the company’s requirements? Is value engineering needed ?

The Windshield division of Jaguar Company makes windshields for use in its Assembly division. The Windshield division incurs variable costs of $208 per windshield and has capacity to make 670,000 windshields per year. The market price is $530 per windshield. The Windshield division incurs total fixed costs of $4,000,000 per year. If the Windshield division has excess capacity, what is the range of possible transfer prices that could be used on transfers between the Windshield and Assembly divisions? Transfer price per windshield will be at least but not more than

Badger Valve and Fitting Company, located in southern Wisconsin, manufactures a variety of industrial valves and pipe fittings that are sold to customers in nearby states. Currently, the company is operating at about 70 percent capacity and is earning a satisfactory return on investment. Management has been approached by Glasgow Industries Ltd. of Scotland with an offer to buy 130,000 units of a pressure valve. Glasgow Industries manufactures a valve that is almost identical to Badger's pressure valve; however, a fire in Glasgow Industries' valve plant has shut down its manufacturing operations. Glasgow needs the 130,000 valves over the next four months to meet commitments to its regular customers. Glasgow is prepared to pay $30.40 each for the valves. Badger's total product cost, based on current attainable standards, for the pressure valve is $32.00, calculated as follows: Direct material Direct labor Manufacturing overhead Total product cost Manufacturing overhead is applied to…

Badger Valve and Fitting Company, located in southern Wisconsin, manufactures a variety of industrial valves and pipe fittings that are sold to customers in nearby states. Currently, the company is operating at about 70 percent capacity and is earning a satisfactory return on investment. Management has been approached by Glasgow Industries Ltd. of Scotland with an offer to buy 130,000 units of a pressure valve. Glasgow Industries manufactures a valve that is almost identical to Badger's pressure valve; however, a fire in Glasgow Industries' valve plant has shut down its manufacturing operations. Glasgow needs the 130,000 valves over the next four months to meet commitments to its regular customers. Glasgow is prepared to pay $30.40 each for the valves. Badger's total product cost, based on current attainable standards, for the pressure valve is $32.00, calculated as follows: Direct material Direct labor Manufacturing overhead Total product cost Manufacturing overhead is applied to…

Hemisphere Electric Coop (HEC) is planning to outsource its 51-person information technology (IT) department to Dyonyx. HEC believes this move will allow it to have access to cutting edge technologies and skill sets that would be cost prohibitive to build on its own. If it is assumed that the loaded cost of an IT employee is $100,000 per year, and that HEC will save 25% of this cost through outsourcing, what is the present worth of the savings to HEC for a 5-year contract at an interest rate of 0.5% per month? Assume the same number of contract employees is needed as are currently employed.

Danford Company, a manufacturer of farm equipment, currently produces 20,000 units of gas filters per year for use in its lawn-mower production. The costs, based on the previous year's production, are reported below. It is anticipated that gas-filter production will last five years. If the company continues to produce the product in-house, annual direct material costs will increase $3000/year (For example, annual material costs during the first production year will be $63,000.) Direct labor will also increase by $5000/year. However, variable overhead costs will increase at the rate of $2000/year and the fixed overhead will remain at its current level over the next five years. John Holland Company has offered to sell Danford 20,000 units of gas filters for $25 per unit. If Danford accepts the offer, some of the manufacturing facilities currently used to manufacture the filter could be rented to a third party for $35,000 per year. The firm's interest rate is known to be 15%. What is the…

Bostonian Inc. has a number of divisions, including the Delta Division and the Listen Now Division. The Listen Now Division owns and operates a line of MP3 players. Each year, the Listen Now Division purchases component AZ in order to manufacture the MP3 players. Currently, it purchases this component from an outside supplier for $6.50 per component. The manager of the Delta Division has approached the manager of the Listen Now Division about selling component AZ to the Listen Now Division. The full product cost of component AZ is $3.10. The Delta Division can sell all of the component AZs it makes to outside companies for $6.50. The Listen Now Division needs 18,000 component AZs per year; the Delta Division can make up to 60,000 components per year. Required: A.  Which division sets the maximum transfer price? Which division sets the minimum transfer price? Maximum   Minimum   B.  Suppose the company policy is that all transfer take place at full cost. What is the transfer…

Flowton Products enjoys a steady demand for stainless steel infiltrators used in a number of chemical processes. Revenues from the infiltrator division are $50 million a year, and production costs are $47.5 million. However, the 10 high-precision Munster stamping machines that are used in the production process are coming to the end of their useful life. One possibility is simply to replace each existing machine with a new Munster. These machines would cost $800,000 each and would not involve any additional operating costs. The alternative is to buy 10 centrally controlled Skilboro stampers. Skilboros cost $1.25 million each, but compared with the Munster, they would produce a total saving in operator and material costs of $500,000 a year. Moreover, the Skilboro is sturdily built and would last 10 years, compared with an estimated 7-year life for the Munster. Analysts in the infiltrator division have produced the accompanying summary table, which shows the forecast total cash flows…

Jupiter Game Company manufactures pocket electronic games. Last year Jupiter sold 25,000 games at $25 each. Total costs amounted to $525,000, of which $150,000 were considered fixed. In an attempt to improve its product, the company is considering replacing a component part that has a cost of $2.50 with a new and better part costing $4.50 per unit in the coming year. A new machine also would be needed to increase plant capacity. The machine would cost $18,000 with a useful life of six years and no salvage value. The company uses straight-line depreciation on all plant assets. (Ignore income taxes.) Jupiter Game Company manufactures pocket electronic games. Last year Jupiter sold 25,000 games at $25 each. Total costs amounted to $525,000, of which $150,000 were considered fixed. In an attempt to improve its product, the company is considering replacing a component part that has a cost of $2.50 with a new and better part costing $4.50 per unit in the coming year. A new machine also would…

Middle Industries produces a sensor for use in manufacturing. It produces the sensor in a plant with an annual practical capacity of 75,000 units. The variable cost of the sensor is $185.00 per unit, and the fixed costs of the plant are $12,375,000 annually. Current annual demand is 55,000 sensors. Middle Industries bought the plant because it was close to its other manufacturing facilities and was available for sale when they were searching for a location. Required: What cost per sensor should the cost system report to facilitate management decision making? What is the cost of excess capacity? What cost per sensor would the cost system report if the smallest manufacturing plant that could be built was able to produce 75,000 sensors? What would be the cost of excess capacity?

Middle Industries produces a sensor for use in manufacturing. It produces the sensor in a plant with an annual practical capacity of 75,000 units. The variable cost of the sensor is $185.00 per unit, and the fixed costs of the plant are $12,375,000 annually. Current annual demand is 55,000 sensors. Middle Industries bought the plant because it was close to its other manufacturing facilities and was available for sale when they were searching for a location. Required: What cost per sensor should the cost system report to facilitate management decision making? What is the cost of excess capacity? What cost per sensor would the cost system report if the smallest manufacturing plant that could be built was able to produce 75,000 sensors? What would be the cost of excess capacity?

5. A supplier has offered us 1200 pounds of filberts for $950. Should these filberts be purchased? If yes, how much would profits increase?   Need explanation for the answer please

Thomasville Furniture Industries offers several types of high-performance fabrics that are capable of withstanding chemicals as harsh as chlorine. A Midwestern manufacturing company that uses fabric in several products has a report showing that the present worth of fabric purchases over a specified 5-year period was $900,000. If the costs are known to have increased geometrically by 5% per year during that time and the company uses an interest rate of 15% per year for investments, what was the cost of the fabric in year 1?

Tidwell, Inc., has two plants that manufacture a line of wheelchairs. One is located in Dallas, and the other in Oklahoma City. Each plant is set up as a profit center. During the past year, both plants sold their tilt wheelchair model for $1,782. Sales volume averages 20,000 units per year in each plant. Recently, the Dallas plant reduced the price of the tilt model to $1,584. Discussion with the Dallas manager revealed that the price reduction was possible because the plant had reduced its manufacturing and selling costs by reducing what was called “non-value-added costs.” The Dallas manufacturing and selling costs for the tilt model were $1,386 per unit. The Dallas manager offered to loan the Oklahoma City plant his cost accounting manager to help it achieve similar results. The Oklahoma City plant manager readily agreed, knowing that his plant must keep pace—not only with the Dallas plant but also with competitors. A local competitor had also reduced its price on a similar model,…