Liberty ACCT 212 Chapter 10 Homework Answers Complete Solutions
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Question 1
Farrow Co. expects to sell 400,000 units of its product in the next period with the following results.
The company has an opportunity to sell 40,000 additional units at $12 per unit. The additional sales would not affect its current expected sales. Direct materials and labor costs per unit would be the same for the additional units as they are for the regular units. However, the additional volume would create the following incremental costs: (1) total overhead would increase by 15% and (2) administrative expenses would increase by $172,000.
Calculate the combined total net income if the company accepts the offer to sell additional units at the reduced price of $12 per unit. Should the company accept or reject the offer?
Question 2
Gilberto Company currently manufactures 80,000 units per year of one of its crucial parts. Variable costs are $2.70 per unit, fixed costs related to making this part are $90,000 per year, and allocated fixed costs are $77,000 per year. Allocated fixed costs are unavoidable whether the company makes or buys the part. Gilberto is considering buying the part from a supplier for a quoted price of $3.90 per unit guaranteed for a three-year period.
Calculate the total incremental cost of making 80,000 and buying 80,000 units. Should the company continue to manufacture the part, or should it buy the part from the outside supplier?
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Question 3
A company with excess capacity must decide between scrapping or reworking units that do not pass inspection. The company has 10,000 defective units that cost $5.80 per unit to manufacture. The units can be a) sold as is for $3.10 each, or b) reworked for $4.90 each and then sold for the full price of $8.90 each.
What is the incremental income from selling the units as scrap and reworking and selling the units? Should the company sell the units as scrap or rework them? (Enter costs and losses as negative values.)
Question 4
Varto Company has 11,400 units of its sole product in inventory that it produced last year at a cost of $23 each. This year’s model is superior to last year’s, and the 11,400 units cannot be sold at last year’s regular selling price of $39 each. Varto has two alternatives for these items: (1) they can be sold to a wholesaler for $14 each or (2) they can be processed further at a cost of $143,400 and then sold for $26 each. Should Varto sell the products as is or process further and then sell them?
Question 5
Colt Company owns a machine that can produce two specialized products. Production time for Product TLX is two units per hour and for Product MTV is five units per hour. The machine’s capacity is 2,600 hours per year. Both products are sold to a single customer who has agreed to buy all of the company’s output up to a maximum of 4,420 units of Product TLX and 2,320 units of Product MTV. Selling prices and variable costs per unit to produce the products follow.
Determine the company’s most profitable sales mix and the contribution margin that results from that sales mix. (Round per unit contribution margins to 2 decimal places.)
Question 6
Recompute and prepare the departmental income statements (including a combined total column) for the company under each of the following separate scenarios.
