Crane Company manufactures dog food for distribution in Washington, Oregon, and California. A dog food distributor from Floridahas approached Crane and offered to purchase 264000 pounds of dog food for $1.40 per pound. Crane can produce 2048000 poundsof dog food per year, and its results for last year are as follows:Sales (1844000 at$1.65)Variable costsContribution marginFixed costsOperating income$3042600O $1392800O $1336400O $2084400O $127040011064001936200814000$1122200If Crane accepts the offer, it will only be able to sell 1784000 pounds of dog food at the regular price due to its capacity constraints.What will Crane's total operating income be next year if it accepts the offer?

Fixed costs will remain constant in total.Thus in decision making process we should not consider…

Answered: Crane Company manufactures dog food for…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Vista Company manufactures electronic equipment. It currently purchases the special switches used in each of its products from an outside supplier. The supplier charges Vista $5.20 per switch. Vista 's CEO is considering purchasing either machine A or machine B so the company can manufacture its own switches. The projected data are as follows: Machine A Machine B Annual fixed costs $ 582, 450 $ 792, 100 Variable cost per switch 1.67 0.75 Required: 1. For each machine, what is the minimum number of switches that Vista must make annually for total costs to equal outside purchase cost? 2. What volume level would produce the same total costs regardless of the machine purchased? 3. What is the most profitable alternative for producing 230,000 switches per year and what is the total cost of that alternative?
Rooney Electronics currently produces the shipping containers it uses to deliver the electronics products it sells. The monthly cost of producing 9,100 containers follows. Unit-level materials Unit-level labor Unit-level overhead Product-level costs* $ 5,200 6,500 3,600 9,300 26,600 Allocated facility-level costs *One-third of these costs can be avoided by purchasing the containers. Russo Container Company has offered to sell comparable containers to Rooney for $2.70 each. Required a. Calculate the total relevant cost. Should Rooney continue to make the containers? b. Rooney could lease the space it currently uses in the manufacturing process. If leasing would produce $11,500 per month, calculate the total avoidable costs. Should Rooney continue to make the containers? a. Total relevant cost Should Rooney continue to make the containers? b. Total avoidable cost Should Rooney continue to make the containers?
Value Electronics uses a standard part in the manufacture of different types of radios. The total cost of producing 32,000 parts is $90,000, which includes fixed costs of $30,000 and variable costs of $60,000. The company can buy this part from an external supplier for $5 per unit and avoid 10% of the fixed costs. If Value Electronics decides to outsource the production of the part, how will it impact its operating income? A. Operating income increases by $97,000. B. Operating income decreases by $100,000. C. Operating income decreases by $97,000. D. Operating income increases by $100,000.
Thornton Electronics currently produces the shipping containers It uses to deliver the electronics products It sells. The monthly cost of producing 9,100 containers follows. Unit-level materials Unit-level labor Unit-level overhead Product-level costs* Allocated facility-level costs $ 5,100 6,400 3,300 9,900 28,000 *One-third of these costs can be avoided by purchasing the containers. Russo Container Company has offered to sell comparable containers to Thornton for $2.60 each. Required a. Calculate the total relevant cost. Should Thornton continue to make the containers? b. Thornton could lease the space it currently uses in the manufacturing process. If leasing would produce $12,100 per month, calculate the total avoidable costs. Should Thornton continue to make the containers? a. Total relevant cost a. Should Thornton continue to make the containers? b. Total avoidable cost b. Should Thornton continue to make the containers?
Waterways mass-produces a special connector unit that it normally sells for $3.60. It sells approximately 31,700 of these units each year. The variable costs for each unit are $2.10. A company in Canada that has been unable to produce enough of a similar connector to meet customer demand would like to buy 16,500 of these units at $2.40 per unit. The production of these units is near full capacity at Waterways, so to accept the offer from the Canadian company would require temporarily adding another shift to its production line. To do this would increase variable manufacturing costs by $0.30 per unit. However, variable selling costs would be reduced by $0.20 a unit.An irrigation company has asked for a special order of 2,100 of the connectors. To meet this special order, Waterways would not need an additional shift, and the irrigation company is willing to pay $3.00 per unit.
The Dairy Division of Concord Corporation produces and sells milk to outside customers. The operation has the capacity to produce 200000 gallons of milk a year. Last year’s operating results were as follows: Sales (150000) gallons $675000 Variable costs 292500 Contribution margin 382500 Fixed costs 100000 Net Income $ 282500 Assume the Dairy Division is operating at capacity. If the Yogurt Division wants to purchase 40000 gallons of milk from the Dairy Division, what is the minimum price that will allow the Dairy Division to maintain its current net income? $1.88 per gallon $4.50 per gallon $1.95 per gallon $2.55 per gallon
Cabin Creek Company is considering adding a new line of kitchen cabinets. The company's accountant provided the following estimated data for these cabinets: Annual sales Selling price per unit Variable manufacturing costs per unit Variable selling costs per unit Incremental fixed costs per year: 800 units. $ 3,680 $ 1,680 $ 530 $ 493,400 Manufacturing Selling Allocated common costs per year: Manufacturing Selling and administrative $ 73,000 $ 98,000 $ 130,000 If the kitchen cabinets are added as a new product line, the company expects that the contribution margin earned from selling products will decrease by $236,000 per year. Required: 1. What is the annual financial advantage (disadvantage) of adding the new line of kitchen cabinets? 2. What is the lowest selling price per unit that could be charged for the cabinets and still make it economically desirable for th company to add the new product line? Complete this question by entering your answers in the tabs below. Required 1…
Lowwater Sailmakers manufactures sails for sailboats. The company has the capacity to produce 25,000 sails per year, but is currently producing and selling 20,.000 sails per year, The following information relates to current production. If a special sales order is accepted for 2,000 sails at a price of $87 per unit, and fixed costs increase by $20,000, how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order.) Sale price per unit $150 Variable costs unit: per Manufacturing Marketing and administrative $60 $20 Total fixed costs: Manufacturing Marketing and administrative S600,000 $200 000 Increase by S14,000 Decrease by S4,000 ) Decrease by S14,000 ) Decrease by S6,000 () Increase by S6,000 ()
The Trailer division of Baxter Bicycles makes bike trailers that attach to bicycles and can carry children or cargo. The trailers have a retail price of $103 each. Each trailer incurs $48 of variable manufacturing costs. The Trailer division has capacity for 29,000 trailers per year and incurs fixed costs of $490,000 per year. Required:1. Assume the Assembly division of Baxter Bicycles wants to buy 4,400 trailers per year from the Trailer division. If the Trailer division can sell all of the trailers it manufactures to outside customers, what price should be used on transfers between Baxter Bicycles's divisions?2. Assume the Trailer division currently only sells 9,200 Trailers to outside customers, and the Assembly division wants to buy 4,400 trailers per year from the Trailer division. What is the range of acceptable prices that could be used on transfers between Baxter Bicycles's divisions?
Nardin Outfitters has a capacity to produce 12,000 of their special arctic tents per year. The company is currently producing and selling 5,000 tents per year at a selling price of $900 per tent. The cost of producing and selling one tent follows: Variable manufacturing costs $ 440 Fixed manufacturing costs 90 Variable selling and administrative costs 80 Fixed selling and administrative costs 50 Total costs $ 660 The company has received a special order for 500 tents at a price of $600 per tent from Chipman Outdoor Center. It will not have to pay any sales commission on the special order, so the variable selling and administrative costs would be only $45 per tent. The special order would have no effect on total fixed costs. The company has rejected the offer based on the following computations: Selling price per case $ 600 Variable manufacturing costs 440 Fixed manufacturing costs 90 Variable selling and administrative costs 45 Fixed selling and…
Sandy Bank, Incorporated, makes one model of wooden canoe. Partial information is given below. Required: 1. Complete the following table. 2. Suppose Sandy Bank sells its canoes for $540 each. Calculate the contribution margin per canoe and the contribution margin ratio. 3. This year Sandy Bank expects to sell 760 canoes for $540 each. Prepare a contribution margin income statement for the company. 4. Calculate Sandy Bank's break-even point in units and in sales dollars. Sandy Bank sells its canoes for $540 each. 5. Suppose Sandy Bank wants to earn $76,000 profit this year. Calculate the number of canoes that must be sold to achieve this target. Sandy Bank sells its canoes for $540 each. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 This year Sandy Bank expects to sell 760 canoes for $540 each. Prepare a contribution margin income statement for the company. Note: Round your intermediate calculations to 2 decimal…
ABC is a company that does land surveys and engineering consulting. They have an opportunity to purchase new computer equipment that will allow them to render their drawings and surveys much more quickly. The new equipment will cost them an additional $1,200 per month, but they will be able to increase their sales by 10% per year. Their current annual cost and break-even figures are shown below. Units sold 1,400 Sales proce per unit 225 variable cost per unit 145 fixed costs 52,000 break even (in units) 650 contribution margin ratio 0.36 break even in dollars 146,250 sales 315,000 variable cost 203,000 fixed costs 52,000 net income loss 60,000 What will be the impact on the break-even point if ABC purchases the new computer? A. What will be the impact on net operating income if ABC purchases the new computer? B. What would be your recommendation to ABC regarding this purchase? Current New Computer Units sold Sales price per unit…

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