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ICP 4 Albrecht Ltd. manufactures tackle boxes, and the company estimates that during the first quarter of this year, it will be operating at 80% of normal capacity. The selling price and cost information for the tackle box is as follows: Selling price $22.50 Direct materials Direct labour (0.5 hours x $15.00) Overhead (0.25 machine hours x $10) $ 6.25 7.50 2.50

ICP 4 Albrecht Ltd. manufactures tackle boxes, and the company estimates that during the first quarter of this year, it will be operating at 80% of normal capacity. The selling price and cost information for the tackle box is as follows: Selling price $22.50 Direct materials Direct labour (0.5 hours x $15.00) Overhead (0.25 machine hours x $10) $ 6.25 7.50 2.50

FINANCIAL ACCOUNTING
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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5:57 ull ? 4 special order-Albrecht Ltd..pdf Intermediate Management Accounting Lesson 6-In-Class Problems ICP 4 Albrecht Ltd. manufactures tackle boxes, and the company estimates that during the first quarter of this year, it will be operating at 80% of normal capacity. The selling price and cost information for the tackle box is as follows: Selling price $22.50 $ 6.25 Direct materials Direct labour (0.5 hours x $15.00) Overhead (0.25 machine hours x $10) 7.50 2.50 $16.25 Albrecht is considering two special order requests to fill the remaining 20% of capacity. The special order requests received are as follows: • Alan Co. has asked for a tackle box that is similar to Albrecht's boxes but which Alan would like to market as its own. Alan is willing to pay $15.00 each for 20,000 boxes. The special order for Alan would have the same costs except for direct materials, which would be only $5.60 per box. • Shala Corp. has asked for 7,500 tackle boxes at $18.00 per box. This box will be different than the regular case Albrecht produces and would have the following cost data: $ 8.15 7.50 5.00 $20.65 Direct materials Direct labour (0.5 hours x $15.00) Overhead (0.50 machine hours x $10) The Shala order will also result in $3,750 of setup costs and $6,250 for additional equipment, which will be used only for this order and then discarded. Albrecht's manufacturing machine hours are limited to 7,500 per month. The budgeted fixed overhead for this year is $540,000. Overhead is applied to production based on machine hours at $10 per hour. Albrecht has the entire first quarter to work on the special orders, if accepted. Each special order is isolated and not expected to result in future sales from either Shala or Alan. Required: Should either or both special orders be accepted? What are the qualitative aspects of this decision? 'CPA OHARTERED PROFESSIONAL ACCOUNTANTS PREP 7/ 20
Transcribed Image Text:5:57 ull ? 4 special order-Albrecht Ltd..pdf Intermediate Management Accounting Lesson 6-In-Class Problems ICP 4 Albrecht Ltd. manufactures tackle boxes, and the company estimates that during the first quarter of this year, it will be operating at 80% of normal capacity. The selling price and cost information for the tackle box is as follows: Selling price $22.50 $ 6.25 Direct materials Direct labour (0.5 hours x $15.00) Overhead (0.25 machine hours x $10) 7.50 2.50 $16.25 Albrecht is considering two special order requests to fill the remaining 20% of capacity. The special order requests received are as follows: • Alan Co. has asked for a tackle box that is similar to Albrecht's boxes but which Alan would like to market as its own. Alan is willing to pay $15.00 each for 20,000 boxes. The special order for Alan would have the same costs except for direct materials, which would be only $5.60 per box. • Shala Corp. has asked for 7,500 tackle boxes at $18.00 per box. This box will be different than the regular case Albrecht produces and would have the following cost data: $ 8.15 7.50 5.00 $20.65 Direct materials Direct labour (0.5 hours x $15.00) Overhead (0.50 machine hours x $10) The Shala order will also result in $3,750 of setup costs and $6,250 for additional equipment, which will be used only for this order and then discarded. Albrecht's manufacturing machine hours are limited to 7,500 per month. The budgeted fixed overhead for this year is $540,000. Overhead is applied to production based on machine hours at $10 per hour. Albrecht has the entire first quarter to work on the special orders, if accepted. Each special order is isolated and not expected to result in future sales from either Shala or Alan. Required: Should either or both special orders be accepted? What are the qualitative aspects of this decision? 'CPA OHARTERED PROFESSIONAL ACCOUNTANTS PREP 7/ 20
6:37 transfer price-West Industries.pdf Intermediate Management Accounting Lesson 6-In-Class Problems ICP 7 West Industries is a highly decentralized corporation with independent operating divisions. Each division is evaluated and rewarded based on its total net income. One of the divisions, Visic, manufactures and sells air conditioners. Visic is projecting sales of 17,400 for next year. Another division, Weber, makes and sells compressors. Its projected income statement for next year follows: Weber Division Pro forma income statement For next year Per unit Total Sales revenues $100 $6.400,000 Less cost of goods sold: Direct materials Direct labour Variable overhead 12 8 10 768,000 512,000 640,000 Fixed overhead 11 41 704.000 2.624,000 Gross profit - 59 - 3.776,000 Operating expenses: Variable selling expenses Fixed selling expenses Fixed administrative expenses 384,000 256,000 448.000 1.088.000 4 17 $ 42 Pre-tax net income $2,688,000 Weber has the capacity to produce 75,000 compressors annually. Visic currently purchases compressors from an outside source at $70, and proposes that Weber transfer compressors to it at a transfer price of $50. The Visic manager justified the low bid based on some cost savings that should be realized if compressors are transferred. Because specifications for this compressor are slightly different from Weber's standard model, $1.50 of direct materials cost per compressor can be saved and no variable selling expenses will be incurred on compressors transferred. Required: a) Compute the minimum transfer price Weber should accept. b) Compute the estimated effect on Weber's net income if the 17,400 compressors are transferred at $50 each. c) Determine whether it would be in West Industries' best interest for Weber to transfer compressors at $50 each. 'CPA CHARTERED PROFESSONAL PREP ACCOUNTANTS 12/ 20
Transcribed Image Text:6:37 transfer price-West Industries.pdf Intermediate Management Accounting Lesson 6-In-Class Problems ICP 7 West Industries is a highly decentralized corporation with independent operating divisions. Each division is evaluated and rewarded based on its total net income. One of the divisions, Visic, manufactures and sells air conditioners. Visic is projecting sales of 17,400 for next year. Another division, Weber, makes and sells compressors. Its projected income statement for next year follows: Weber Division Pro forma income statement For next year Per unit Total Sales revenues $100 $6.400,000 Less cost of goods sold: Direct materials Direct labour Variable overhead 12 8 10 768,000 512,000 640,000 Fixed overhead 11 41 704.000 2.624,000 Gross profit - 59 - 3.776,000 Operating expenses: Variable selling expenses Fixed selling expenses Fixed administrative expenses 384,000 256,000 448.000 1.088.000 4 17 $ 42 Pre-tax net income $2,688,000 Weber has the capacity to produce 75,000 compressors annually. Visic currently purchases compressors from an outside source at $70, and proposes that Weber transfer compressors to it at a transfer price of $50. The Visic manager justified the low bid based on some cost savings that should be realized if compressors are transferred. Because specifications for this compressor are slightly different from Weber's standard model, $1.50 of direct materials cost per compressor can be saved and no variable selling expenses will be incurred on compressors transferred. Required: a) Compute the minimum transfer price Weber should accept. b) Compute the estimated effect on Weber's net income if the 17,400 compressors are transferred at $50 each. c) Determine whether it would be in West Industries' best interest for Weber to transfer compressors at $50 each. 'CPA CHARTERED PROFESSONAL PREP ACCOUNTANTS 12/ 20
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