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Troy Engines, Ltd., manufactures a variety of engines for use in heavy equipment. The company has always produced all of the necessary parts for its engines, including all of the carburetors. An outside supplier has offered to sell one type of carburetor to Troy Engines, Ltd., for a cost of $35 per unit. To evaluate this offer, Troy Engines, Ltd., has gathered the following information relating to its own cost of producing the carburetor internally: |
| Per Unit | 14,400 Units per year |
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| Direct materials | $9 | $129,600 |
| Direct labor | 11 | 158,400 |
| Variable manufacturing overhead | 3 | 43,200 |
| Fixed manufacturing overhead, traceable | 9* | 129,600 |
| Fixed manufacturing overhead, allocated | 13 | 187,200 |
| Total cost |
$45 |
$648,000 |
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| *One third supervisory salaries; two thirds depreciation of special equipment (no resale value). |
rev: 02 12 2011
3. value:
3.00 points
| Requirement 1: |
| (a) |
What will be the total relevant cost of 14,400 units, if they are manufactured internally? (Omit the “$” sign in your response.) |
| Total relevant cost | $ |
| (b) | Should the outside supplier’s offer be accepted? |
| (Click to select) Accept Reject |
rev: 02 12 2011 check my workeBook Linkreferences
4. value:
3.00 points
| Requirement 2: |
| Suppose that if the carburetors were purchased, Troy Engines, Ltd., could use the freed capacity to launch a new product. The segment margin of the new product would be $70,000 per year. |
| (a) |
What will be the total relevant cost of 14,400 units, if they are manufactured internally? (Omit the “$” sign in your response.) |
| Total relevant cost | $ |
| (b) | Should Troy Engines, Ltd., accept the offer to by Solid Savings” href=”http://ezto.mhecloud.mcgraw hill.com/#” class=”c38″>buy the carburetors for $35 per unit? |
(Click to select) Accept Reject
rev: 02 12 2011 check my workeBook Linkreferences
5. value:
6.00 points
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Imperial Jewelers is considering a special order for 27 handcrafted by Solid Savings” href=”http://ezto.mhecloud.mcgraw hill.com/#” class=”c38″>gold bracelets to be given as gifts to members of a wedding party. The normal selling price of a gold bracelet is $401.50 and its unit product cost is $264.00 as shown below: |
by Solid Savings” href=”http://ezto.mhecloud.mcgraw hill.com/#” class=”c38″>
| Direct materials | $142.00 | |
| Direct labor | 86.00 | |
| Manufacturing overhead | 36.00 | |
| Unit product cost |
$264.00 |
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Most of the manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However, $11 of the overhead is variable with respect to the number of bracelets produced. The customer who is interested in the special bracelet order would like special filigree applied to the bracelets. This filigree would require additional materials costing $10 per bracelet and would also require acquisition of a special tool costing $458 that would have no other use once the special order is completed. This order would have no effect on the company’s regular sales and the order could be by Solid Savings” href=”http://ezto.mhecloud.mcgraw hill.com/#” class=”c38″>fulfilled using the company’s existing capacity without affecting any other order. by Solid Savings” href=”http://ezto.mhecloud.mcgraw hill.com/#” class=”c38″> |
| Required: |
| (a) |
What effect would accepting this order have on the company’s net operating income if a special price of$361.50 per bracelet is offered for this order? (Input the amount as positive value. Round your answer to 2 decimal places. Omit the “$” sign in your response.) |
| Net operating income (Click to select)decreasedincreased by | $ |
| (b) | Should the special order be accepted at this price? |
| (Click to select)NoYes |
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Barlow Company manufactures three products: A, B, and C. The selling price, variable costs, and contribution margin for one unit of each product follow: |
| Product | ||||||
| A | B | C | ||||
| Selling price |
$190 |
$258 |
$250 |
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| Variable expenses: | ||||||
| Direct materials | 20 | 78 | 32 | |||
| Other variable expenses |
102 |
90 |
136 |
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| Total variable Expense | 122 | 168 | 168 | |||
| Contribution margin |
$68 |
$90 |
$82 |
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| Contribution margin ratio | 35.79% | 34.88% | 32.8% | |||
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The same raw material is used in all three products. Barlow Company has only 5,000 pounds of raw material on hand and will not be able to obtain any more of it for several weeks due to a strike in its supplier’s plant. Management is trying to decide which product(s) to concentrate on by Solid Savings” href=”http://ezto.mhecloud.mcgraw hill.com/#” class=”c38″>next week in filling its backlog of orders. The material costs $2 per pound. |
by Solid Savings” href=”http://ezto.mhecloud.mcgraw hill.com/#” class=”c38″>
rev: 02 12 2011
6. value:
2.00 points
| Requirement 1: |
|
Compute the amount of contribution margin that will be obtained per pound of material used in each product. (Round your answers to 2 decimal places. Omit the “$” sign in your response.) |
| A | B | C | |
| Contribution margin | $ | $ | $ |
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rev: 02 12 2011 check my workeBook Linkreferences
7. value:
2.00 points
| Requirement 2: |
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Since material time seems to be the company’s constraint, identify the product, which the company should work on next week. |
rev: 02 12 2011
| Product B | |
| Product C | |
| Product A |
check my workeBook Linkreferences
8. value:
2.00 points
| Requirement 3: |
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A foreign supplier could furnish Barlow with additional stocks of the raw material at a substantial premium over the usual price. If there is unfilled demand for all three products, what is the highest price that Barlow Company should be willing to pay for an additional pound of materials? (Round your answers to 2 decimal places. Omit the “$” sign in your response.) |
| For product A | $ | ||
| For product B | $ | ||
| For product C | $ | ||
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