Financial And Managerial Accounting
15th Edition
ISBN: 9781337902663
Author: WARREN, Carl S.
Publisher: Cengage Learning,
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Textbook Question
Chapter 27, Problem 1PA
Lean principles
Bright Night, Inc., manufactures light bulbs. Its purchasing policy requires that the purchasing agents place each quarter’s purchasing requirements out for bid. This is because the Purchasing Department is evaluated solely by its ability to get the lowest purchase prices. The lowest bidder receives the order for the next quarter (90 working days).
To make its bulb products, Bright Night requires 36,000 pounds of glass per quarter. Bright Night received two glass bids for the third quarter, as follows:
- Central Glass Company: $30.00 per pound of glass. Delivery schedule: 36,000 (400 lbs. x 90 days) pounds at the beginning of July to last for 3 months.
- Ithaca Glass Company: $30.20 per pound of glass. Delivery schedule: 400 pounds per working day (90 days in the quarter).
Bright Night accepted Central Glass Company’s bid because it was the low-cost bid.
Instructions
- 1. Comment on Bright Night’s purchasing policy.
- 2. What are the additional (hidden) costs, beyond price, of Central Glass Company’s bid? Why weren’t these costs considered?
- 3. Considering only inventory financing costs, what is the additional cost per pound of Central Glass Company’s bid if the annual cost of money is 8%? (Hint: Determine the average value of glass inventory held for the quarter and multiply by the quarterly interest charge, then divide by the number of pounds.)
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Bright Night, Inc., manufactures light bulbs. Its purchasing policy requires that the purchasing agents place each quarter’s purchasing requirements out for bid. This is because the Purchasing Department is evaluated solely by its ability to get the lowest purchase prices. The lowest bidder receives the order for the next quarter (90 working days).To make its bulb products, Bright Night requires 36,000 pounds of glass per quarter. Bright Night received two glass bids for the third quarter, as follows:• Central Glass Company: $30.00 per pound of glass. Delivery schedule: 36,000 (400 lbs. × 90 days) pounds at the beginning of July to last for 3 months.• Ithaca Glass Company: $30.20 per pound of glass. Delivery schedule: 400 pounds per working day (90 days in the quarter).Bright Night accepted Central Glass Company’s bid because it was the low-cost bid.Instructions1. Comment on Bright Night’s purchasing policy.2. What are the additional (hidden) costs, beyond price, of Central Glass…
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Identifying relevant information and making pricing decisions
Nautical manufactures flotation vests in Tampa, Florida. Nautical’s contribution margin income statement for the month ended December 31, 2018, contains the following data:
Suppose Water Works wishes to buy 4,800 vests from Nautical. Nautical will not incur any variable selling and administrative expenses on the special order. The Nautical plant has enough unused capacity to manufacture the additional vests. Water Works has offered $15 per vest, which is below the normal sales price of $19.
Requirements
Identify each cost in the income statement as either relevant or irrelevant to Nautical’s decision.
Prepare a differential analysis to determine whether Nautical should accept this special sales order.
Identity long—term factors Nautical should consider in deciding whether to accept the special sales order.
Chapter 27 Solutions
Financial And Managerial Accounting
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