HighValu Incorporated manufactures a moderately priced set of lawn furniture (a table and four chairs) that it sells for $270. The company currently manufactures and sells 6, 900 sets per year. The manufacturing costs include $94 for directmaterials and $54 for direct labor per set. The overhead charge per set is $44, which consists entirely of fixed costs. Highvalu is considering a special purchase offer from a large retail firm, which has offered to buy 690 sets per year for threeyears at a price of $186 per set. Highvalu has the available plant capacity to produce the order and expects no other orders or profitable alternative uses of the plant capacity. Required: 1. What is the total relevant cost per unit to produce theunits requested by the retail firm? 2. What is the estimated net effect on annual operating income if Highvalu accepts the special sales order?

Relevant costs means those costs which are relevant for decision making and these costs can have…

Answered: Highvalu Incorporated manufactures a…

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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The James Company manufactures widgets that sell for $120 each. The company's unit cost for each widget is as follows: A company in another state has offered to purchase 1,000 widgets from James Company at a cost of $90 each. If James were to accept this special order, no additional Fixed Manufacturing Overhead costs would be incurred. Should James accept this special order? Show relevant calculations.
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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 $5.50 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: Annual fixed costs Variable cost per switch Machine A $632,400 1.78 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 235,000 switches per year and what is the total cost of that alternative? Required 1 Required 2 Required 3 Complete this question by entering your answers in the tabs below. Machine B $ 860,100 0.80 Minimum number of switches For each machine, what is the minimum number of switches that…
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Nardin Outfitters has a capacity to produce 21,000 of their special arctic tents per year. The company is currently producing and selling 5,000 tents per year at a selling price of $1,800 per tent. The cost of producing and selling one tent follows: Variable manufacturing costs Fixed manufacturing costs Variable selling and administrative costs Fixed selling and administrative costs Total costs The company has received a special order for 2,300 tents at a price of $780 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 $63 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 Variable manufacturing costs Fixed manufacturing costs Variable selling and administrative costs Fixed selling and administrative costs Net profit (loss) per case Required: a. What is the…
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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?
Mighty Safe Fire Alarm is currently buying 58,000 motherboards from MotherBoard, Inc., at a price of $63 per board. Mighty Safe is considering making its own boards. The costs to make the board are as follows: direct materials, $31 per unit; direct labor, $10 per unit; and variable factory overhead, $14 per unit. Fixed costs for the plant would increase by $89,000. Which option should be selected and why? Oa. make, $464,000 increase in profits Ob. buy, $89,000 increase in profits Oc. make, $375,260 increase in profits Od. buy, $375,260 increase in profits

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