2. INCREMENTAL ANALYSIS Information regarding current operations of the Farrell Corporation is given below: Sales.... $950,000 Variable Costs.. $450,000 Fixed Costs.. $310,000 A proposed addition to Farrell's factory is estimated by the sales manager to increase sales by a maximum of $750,000. The company's accountants have determined that the proposed addition will add $320,000 to fixed costs each year. Variable costs are expected to be at the same percentage as they currently are before the proposed addition. a. Explain why the existing $310,000 of fixed costs is a sunk cost while the $320.00 of fixed costs associated with the proposed addition is an out-of-pocket cost. h Calculate by how much the proposed addition will either increase or reduce operating income. Show all work.

2. INCREMENTAL ANALYSIS Information regarding current operations of the Farrell Corporation is given below: Sales.... $950,000 Variable Costs.. $450,000 Fixed Costs.. $310,000 A proposed addition to Farrell's factory is estimated by the sales manager to increase sales by a maximum of $750,000. The company's accountants have determined that the proposed addition will add $320,000 to fixed costs each year. Variable costs are expected to be at the same percentage as they currently are before the proposed addition. a. Explain why the existing $310,000 of fixed costs is a sunk cost while the $320.00 of fixed costs associated with the proposed addition is an out-of-pocket cost. h Calculate by how much the proposed addition will either increase or reduce operating income. Show all work.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter10: Short-term Decision Making

Section: Chapter Questions

Problem 12MC: Youngstown Construction plans to discontinue its rooting segment. Last year, this segment generated...

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B. C. D&R Corporation has annual revenues of $375,000, an average contribution margin ratio of 32%, and fixed expenses of $150,000. Required: a. Management is considering adding a new product to the company's product line. The new item will have $9.52 of variable costs per unit. Calculate the selling price that will be required if this product is not to affect the average contribution margin ratio. b. If the new product adds an additional $26,880 to D&R's fixed expenses, how many units of the new product must be sold at the price calculated in part a to break even on the new product? c. If 16,000 units of the new product could be sold at a price of $15.50 per unit, and the company's other business did not change, calculate D&R's total operating income and average contribution margin ratio. Complete this question by entering your answers in the tabs below. Required A Required B Management is considering adding a new product to the company's product line. The new item will have $9.52 of…
Manor Company plans to discontinue a department that has a contribution margin of$24,000and 548,000 in foed costs. of the fixed costs,$21,000cannot be avoided. The effect of this discontinuance on Manor's overall net operating income would be an: a increase of$24,000 b increase of$3,000 c. decrease of$3,000 d. decrease of$24,000
Problem 2-29 (Algo) Changes In Cost Structure; Break-Even Analysis; Operating Leverage; Margin of Safety [LO2-4, LO2-5, LO2-7, LO2-8] Morton Company's contribution format income statement for last month is given below: Sales (46,000 units x $21 per unit) Variable expenses Contribution margin Fixed expenses Net operating income $ $ 966,000 676,200 289,800 231, 840 57,960 The industry in which Morton Company operates is quite sensitive to cyclical movements in the economy. Thus, profits vary considerably from year to year according to general economic conditions. The company has a large amount of unused capacity and is studying ways of improving profits. Required: 1. New ment has come onto market that would allow Morton Company to automate a portion of its operations. Variable expenses would be reduced by $6.30 per unit. However, fixed expenses would increase to a total of $521,640 each month. Prepare two contribution format income statements, one showing present operations and one…
Two alternatives, code-named X and Y, are under consideration at Afalava Corporation. Costs associated with the alternatives are listed below. Alternative N Alternative Y $37,000 $37,000 Materials costs............ Processing costs. $38,000 $53,000 Equipment rental. $12,000 $26,000 Occupancy costs......... $16,000 $26,000 Are the materials costs and processing costs relevant in the choice between alternatives X and Y? (Ignore the equipment rental and occupancy costs in this question.) Select one: a. Only materials costs are relevant b. Only processing costs are relevant C. Both materials costs and processing costs are relevant d. Neither materials costs nor processing costs are relevant
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D&R Corp. has annual revenues of $262,000, an average contribution margin ratio of 33%, and fixed expenses of $101,800. Required: a. Management is considering adding a new product to the company's product line. The new item will have $8.7 of variable costs per unit. Calculate the selling price that will be required if this product is not to affect the average contribution margin ratio. b. If the new product adds an additional $29,100 to D&R's fixed expenses, how many units of the new product must be sold at the price calculated in part a to break even on the new product? c. If 20,900 units of the new product could be sold at a price of $14.2 per unit, and the company's other business did not change, calculate D&R's total operating income and average contribution margin ratio. Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required A Required B Required C If 20,900 units of the new product could be sold at a price of…
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Garrett Company provided the following information: Common fixed cost totaled 46,000. Garrett allocates common fixed cost to Product 1 and Product 2 on the basis of sales. If Product 2 is dropped, which of the following is true? a. Sales will increase by 300,000. b. Overall operating income will increase by 2,600. c. Overall operating income will decrease by 25,000. d. Overall operating income will not change. e. Common fixed cost will decrease by 27,600.
Materials used by the Instrument Division of Ziegler Inc. are currently purchased from outside suppliers at a cost of 1,350 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of 900 per unit. a. If a transfer price of 1,000 per unit is established and 75,000 units of materials are transferred, with no reduction in the Components Divisions current sales, how much would Ziegler Inc.s total operating income increase? b. How much would the Instrument Divisions operating income increase? c. How much would the Components Divisions operating income increase?
Orion Ic., is a newly organized manufacturing business that plans to manufacture and sell 30,000 units per year of a new product. The following estimates have been made of the company's costs and expenses (other than income taxes): Variable Fixed per Unit Manufacturing costs: Direct materials........... Direct labor... Manufacturing overhead...$440,000 $ 38 47 Period costs: Selling expenses.... Administrative expenses. ..... 360,000 $800,000 $100 Totals ... a. What should the company establish as the sales price per unit if it sets a target of earning an operating income of $400,000 by producing and selling 30,000 units during the first year of operations? (Hint: First compute the required contribution margin per unit.) At the unit sales price computed in part a, how many units must the company produce and sell to break even? (Assume all units produced are sold.) b b What will be the margin of safety (in dollars) if the company produces and sells 30,000 units at the sales price…
pls show solutions Manor Company plans to discontinue a department that has a contribution margin of $25,000 and $50,000 in fixed costs. Of the fixed costs, $21,000 cannot be eliminated. The effect on the profit of Manor Company ofdiscontinuing this department would be an increase or decrease of how much?