Homework 5
1.Ingham Inc. has the capacity to produce 10,000 fax machines per year. Ingham currently produces and sells 7,000 units per year. The fax machines normally sell for $100 each. Modem Products has offered to buy 2,000 fax machines from Ingham for $60 each. Unit-level costs associated with manufacturing the fax machines are $15 each for direct labor and $40 each for direct materials. Product-level and facility-sustaining costs are $50,000 and $65,000, respectively.
Required:
a)What is Ingham’s current net income?
b) Should Ingham accept the special offer?
2. Based on the segment income statement below, Sorbet is considering eliminating its Mangoline.
|
Revenue from Mangosales |
$500,000 |
|
Salaries for Mangoworkers |
(100,000) |
|
Direct material |
(300,000) |
|
Sunk costs (equipment depreciation) |
(75,000) |
|
Allocated company-wide facility-sustaining costs |
(50,000) |
|
Net loss |
$ (25,000) |
Required:
Identify each cost as being relevant or not relevant in this decision.
|
Relevant |
Not Relevant |
|
|
Revenue from Mangosales |
||
|
Salaries for Mangoworkers |
||
|
Direct material |
||
|
Sunk costs (equipment depreciation) |
||
|
Allocated company-wide facility-sustaining costs |