Cost and Profit Exam

Pages: 16 (2680 words) Published: May 26, 2013
Costs associated with two alternatives, code-named Q and R, being considered by Lang Corporation are listed below:|  
 | Alternative Q| Alternative R|
  Supplies costs| $ 64,500     | $ 64,500     |   Power costs| $ 36,500     | $ 21,500     |
  Inspection costs|  $ 11,400     | $ 26,300     |   Assembly costs| $ 38,600     | $ 28,000     | |
a.| Which costs are relevant and which are not relevant in the choice between these two alternatives?|  
 |  |
  Supplies costs|   |
  Power costs|   |
  Inspection costs|   |
  Assembly costs|   |
b.| What is the differential cost between the two alternatives? (Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.)|  
  Total differential cost| $   |
Ries Corporation has received a request for a special order of 8,700 units of product R34 for $34.40 each. The normal selling price of this product is $36.10 each, but the units would need to be modified slightly for the customer. The normal unit product cost of product R34 is computed as follows:|  

 |  |  |
  Direct materials| $| 10.70  |
  Direct labor|  | 1.30  |
  Variable manufacturing overhead|  | 6.80  |
  Fixed manufacturing overhead|  | 2.60  |
 | | |
  Unit product cost| $| 21.40  |
 | | |

Direct labor is a variable cost. The special order would have no effect on the company’s total fixed manufacturing overhead costs. The customer would like some modifications made to product R34 that would increase the variable costs by $6.00 per unit and that would require a one-time investment of $37,000 in special molds that would have no salvage value. This special order would have no effect on the company’s other sales. The company has ample spare capacity for producing the special order.|  

Determine the effect on the company’s total net operating income of accepting the special order. (Do not round intermediate calculations. Round your answer to the nearest dollar amount. Omit the "$" sign in your response.)|  

  Incremental net operating income| $   |
The management of Thews Corporation is considering dropping product E28I. Data from the company’s accounting system appear below:|  
 |  |  |
  Sales| $| 474,000  |
  Variable expenses| $| 207,000  |
  Fixed manufacturing expenses| $| 162,000  |
  Fixed selling and administrative expenses| $| 137,000  | |
All fixed expenses of the company are fully allocated to products in the company’s accounting system. Further investigation has revealed that $84,000 of the fixed manufacturing expenses and $63,000 of the fixed selling and administrative expenses are avoidable if product E28I is discontinued.|  


a.| What is the net operating income (loss) earned by product E28I according to the company’s accounting system? (Input the amount as positive value. Omit the "$" sign in your response.)|  
  | $   |
b-1.| What would be the effect on the company’s overall net operating income of dropping product E28I?(Input the amount as positive value. Omit the "$" sign in your response.)| Answer
  The net operating income would    by  $ .|
b-2.| Should the product be dropped?|
 |  |
 | | No|
| Yes|
Part 120000| |
Iacollia Company makes two products from a common input. Joint processing costs up to the split-off point total $47,800 a year. The company allocates these costs to the joint products on the basis of their total sales values at the split-off point. Each product may be sold at the split-off point or processed further. Data concerning these products appear below:|

| Product X| Product Y| Total|
  Allocated joint processing costs|   $| 23,900   |   $| 23,900   | $| 47,800  |   Sales value at split-off point|   $| 33,700   |   $| 33,700   | $| 67,400  |   Costs of further...
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