Required:: Cost To Buy The Part: (1,000 X $1,250) Relevant Costs To Make
Required:: Cost To Buy The Part: (1,000 X $1,250) Relevant Costs To Make
If Southwestern buys the motors from Jinx, 70% of the fixed manufacturing overhead
applied will not be avoided.
Required:
Answer:
Difficulty: 2 Objective: 4
159. Kirkland Company manufactures a part for use in its production of hats. When
10,000 items are produced, the costs per unit are:
Mike Company has offered to sell to Kirkland Company 10,000 units of the part for
$6.00 per unit. The plant facilities could be used to manufacture another item at a
savings of $9,000 if Kirkland accepts the offer. In addition, $1.00 per unit of fixed
manufacturing overhead on the original item would be eliminated.
Required:
a. What is the relevant per unit cost for the original part?
b. Which alternative is best for Kirkland Company? By how much?
Answer:
Difficulty: 2 Objectives: 4, 5, 6
160. Lewis Auto Company manufactures a part for use in its production of automobiles.
When 10,000 items are produced, the costs per unit are:
Direct materials $ 12
Direct manufacturing labor 60
Variable manufacturing overhead 24
Fixed manufacturing overhead 32
Total $128
Monty Company has offered to sell Lewis Auto Company 10,000 units of the part for
$120 per unit. The plant facilities could be used to manufacture another part at a
savings of $180,000 if Lewis Auto accepts the supplier’s offer. In addition, $20 per
unit of fixed manufacturing overhead on the original part would be eliminated.
Required:
a. What is the relevant per unit cost for the original part?
b. Which alternative is best for Lewis Auto Company? By how much?
Answer:
Hackerott Camera is considering eliminating Model AE1 from its camera line because of
losses over the past quarter. The past three months of information for model AE1 is
summarized below.
Should Hackerott Camera eliminate Model AE1 from its product line? Why or why
not?
Answer:
No, Hackerott Camera should not eliminate Model AE1 from its product line because it
contributes $10,000 toward fixed costs and profits.
Difficulty: 2 Objective: 7
163. The management accountant for the Chocolate S’more Company has prepared the
following income statement for the most current year.
a. Do you recommend discontinuing the Other Candy product line? Why or why
not?
b. If the Chocolate product line had been discontinued, corporate profits for the
current year would have decreased by what amount?
Answer:
a. No, I would not recommend discontinuing the Other Candy product line because
this product line contributes $4,000 towards corporate costs and profits.
$25,000 - $15,000 - $3,000 - $3,000 = $4,000
Without the Other Candy product line, corporate profits would be $4,000 less than
currently reported.