2.. On January 2, 2011, Kinnaird Hospital purchased a $99,300 special radiology scanner from Faital Inc. The scanner has a useful life of 5 years and will have no disposal value at the end of its useful life. The straight-line method of depreciation is used on this scanner. Annual operating costs with this scanner are $105,740. Approximately one year later, the hospital is approached by Harmon Technology salesperson, Jane Black, who indicated that purchasing the scanner in 2011 from Faital Inc. was a mistake. She points out that Harmon has a scanner that will save Kinnaird Hospital $26,760 a year in operating expenses over its 4-year useful life. She notes that the new scanner will cost $119,400 and has the same capabilities as the scanner purchased last year. The hospital agrees that both scanners are of equal quality. The new scanner will have no disposal value. Black agrees to buy the old scanner from Kinnaird Hospital for $30,780. If Kinnaird Hospital sells its old scanner on January 2, 2012, compute the gain or loss on the sale. (Enter the answer as a positive number and indicate profit or loss.) Using incremental analysis, determine if Kinnaird Hospital should purchase the new scanner on January 2, 2012. (If answer is zero, please enter 0. Do not leave any fields blank. If amount decreases the income, use either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Enter cost amounts as positive in the columns “Retain Scanner” and “Replace Scanner”. To enter salvage value amount in columns “Retain Scanner” and “Replace Scanner” use either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Retain Scanner Replace Scanner Net Income Increase (Decrease) Annual operating costs $ $ $ New scanner cost Old scanner salvage Total $ $ $ 3.Barney Company must decide whether to make or buy some of its components. The costs of producing 54,600 switches for its generators are as follows. Direct materials $29,810 Variable overhead $45,210 Direct labor $28,450 Fixed overhead $60,330 Instead of making the switches at an average cost of $3.00 ($163,800 / 54,600), the company has an opportunity to buy the switches at $2.81 per unit. If the company purchases the switches, all the variable costs and one-third of the fixed costs will be eliminated. (a) Prepare an incremental analysis showing whether the company should make or buy the switches. (If answer is zero, please enter 0. Do not leave any fields blank. If amount decreases the income, use either a negative sign preceding the number eg -45 or parentheses eg (45).) Net Income Make Buy Increase (Decrease) Direct materials $ $ $ Direct labor Variable manufacturing costs Fixed manufacturing costs Purchase price Total cost $ $ $ (b) Would your answer be different if the released productive capacity will generate additional income of $32,074? (If answer is zero, please enter 0. Do not leave any fields blank. If amount decreases the income, use either a negative sign preceding the number eg -45 or parentheses eg (45).) Net Income Make Buy Increase (Decrease) Total Cost $ $ $ Opportunity cost Total cost $ $ $ 1. Lion Corporation manufactures several types of accessories. For the year, the gloves and mittens line had sales of $496,900, variable expenses of $374,330, and fixed expenses of $148,570. Therefore, the gloves and mittens line had a net loss of $26,000. If Lion eliminates the line, $42,820 of fixed costs will remain. Prepare an analysis showing whether the company should eliminate the gloves and mittens line. (If answer is zero, please enter 0. Do not leave any fields blank. If amount decreases the income, use either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Enter all cost amounts in columns “Continue” and “Eliminate” as positive amounts and subtract where necessary.) Net Income Continue Eliminate Increase (Decrease) Sales $ $ $ Variable costs Contribution margin Fixed costs Net income $ $ $ 2. Hyper Sports Inc. manufactures basketballs for the National Basketball Association (NBA). For the first 6 months of 2011, the company reported the following operating results while operating at 90% of plant capacity and Hyperducing 111,200 units. Amount Sales $4,559,200 Cost of goods sold 3,498,100 Selling and administrative expenses 435,904 Net income $625,196 Fixed costs for the period were: Cost of goods sold $1,079,500, and selling and administrative expenses $217,952. In July, normally a slack manufacturing month, Hyper Sports receives a special order for 10,700 basketballs at $28 each from the Italian Basketball Association (IBA). Acceptance of the order would increase variable selling and administrative expenses $0.52 per unit because of shipping costs but would not increase fixed costs and expenses. Prepare an incremental analysis for the special order. (Round all unit computations to 2 decimal places, e.g. 10.50 and your final answers to 0 decimal places, e.g. 125. If answer is zero, please enter 0. Do not leave any fields blank. If amount decreases the income, use either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Enter all amounts in the columns “Reject Order” and “Accept Order” as positive amounts and subtract where necessary.) Net Income Reject Order Accept Order Increase (Decrease) Revenues $ $ $ Cost of goods sold Selling administrative expenses Net Income $ $ $ Should Hyper Sports Inc. accept the special order? What is the minimum selling price on the special order to produce net income of $4.13 per ball? (Round intermediate calculations and the answers to 2 decimal places, e.g. 12.51.) 3. The management of Sherrer Manufacturing Company is trying to decide whether to continue manufacturing a part or to buy it from an outside supplier. The part, called WISCO, is a component of the company’s finished product. The following information was collected from the records and production data for the year ending December 31, 2011. 7,100 units of WISCO were produced in the Machining Department. Variable manufacturing costs applicable to the production of each WISCO unit were: direct materials $4.63, direct labor $4.49, indirect labor $0.44, utilities $0.36. Fixed manufacturing costs applicable to the production of WISCO were: Cost Item Direct Allocated Depreciation $2,090 $890 Property taxes 550 330 Insurance 930 650 $3,570 $1,870 All variable manufacturing and direct fixed costs will be eliminated if WISCO is purchased. Allocated costs will have to be absorbed by other production departments. The lowest quotation for 7,100 WISCO units from a supplier is $70,932. If WISCO units are purchased, freight and inspection costs would be $0.41 per unit, and receiving costs totaling $1,310 per year would be incurred by the Machining Department. Prepare an incremental analysis for WISCO. (If answer is zero, please enter 0. Do not leave any fields blank. If amount decreases the income, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round answers to 0 decimal places, e.g. 125.) Make WISCO Buy WISCO Net Income Direct Materials Direct Labor Indirect Labor Utilities Depreciation Property taxes insurance purchase price freight and inspection receiving costs total annual costs Based on your analysis, what decision should management make? Would the decision be different if Sherrer Company has the opportunity to produce $4,970 of net income with the facilities currently being used to manufacture WISCO? 4. Milton Industrial Products Co. (MIPC) is a diversified industrial-cleaner processing company. The company’s Verde plant produces two products: a table cleaner and a floor cleaner from a common set of chemical inputs (CDG). Each week 919,350 ounces of chemical input are processed at a cost of $207,600 into 612,900 ounces of floor cleaner and 306,450 ounces of table cleaner. The floor cleaner has no market value until it is converted into a polish with the trade name FloorShine. The additional processing costs for this conversion amount to $258,734. FloorShine sells at $21 per 30-ounce bottle. The table cleaner can be sold for $25 per 30-ounce bottle. However, the table cleaner can be converted into two other products by adding 306,450 ounces of another compound (TCP) to the 306,450 ounces of table cleaner. This joint process will yield 306,450 ounces each of table stain remover (TSR) and table polish (TP). The additional processing costs for this process amount to $104,200. Both table products can be sold for $21 per 30-ounce bottle. The company decided not to process the table cleaner into TSR and TP based on the following analysis. Process Further Table Cleaner Table Stain Remover (TSR) Table Polish(TP) Total Production in ounces 306,450 306,450 306,450 Revenue $255,375 $214,515 $214,515 $429,030 Costs: CDG costs 69,200 * 51,900 51,900 103,800 ** TCP costs 0 52,100 52,100 104,200 Total costs 69,200 104,000 104,000 208,000 Weekly gross profit $186,175 $110,515 $110,515 $221,030 *If table cleaner is not processed further it is allocated 1/3 of the $207,600 of CDG cost, which is equal to 1/3 of the total physical output. **If table cleaner is processed further, total physical output is 1,225,800 ounces. TSR and TP combined account for 50% of the total physical output and are each allocated 25% of the CDG cost. Determine if management made the correct decision to not process the table cleaner further by doing the following. (1) Calculate the company’s total weekly gross profit assuming the table cleaner is not processed further. $ (2) Calculate the company’s total weekly gross profit assuming the table cleaner is processed further. $ (3) Compare the resulting net incomes and comment on management’s decision. Management made the decision by choosing to not process table cleaner further Using incremental analysis, determine if the table cleaner should be processed further. (If answer is zero, please enter 0. Do not leave any fields blank. If amount decreases the income, use either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Enter all amounts in the columns “Don’t Process Table Cleaner” and “Process table cleaner further” as positive amounts and subtract where necessary.) Don’t Process Table Cleaner Further Process Table Cleaner Further Net Income Increase (Decrease) Incremental Revenues $ $ $ Incremental Costs Totals $ $ $

 
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