Question

# roduct A has revenue of \$195,000, variable cost of goods sold of \$115,700, variable selling expenses...

roduct A has revenue of \$195,000, variable cost of goods sold of \$115,700, variable selling expenses of \$33,500, and fixed costs of \$60,900, creating a loss from operations of \$15,100.

Prepare a differential analysis as of May 9, to determine whether Product A should be continued (Alternative 1) or discontinued (Alternative 2), assuming fixed costs are unaffected by the decision. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

 Differential Analysis Continue Product A (Alt. 1) or Discontinue Product A (Alt. 2) May 9 Continue Product A (Alternative 1) Discontinue Product A (Alternative 2) Differential Effect on Income (Alternative 2) Revenues \$ \$ \$ Costs: Variable cost of goods sold Variable selling expenses Fixed costs Income (Loss) \$ \$ \$

Determine if Product A should be continued (Alternative 1) or discontinued (Alternative 2).

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A restaurant bakes its own bread for a cost of \$168 per unit (100 loaves), including fixed costs of \$36 per unit. A proposal is offered to purchase bread from an outside source for \$97 per unit, plus \$8 per unit for delivery.

Prepare a differential analysis dated July 7 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the bread, assuming that fixed costs are unaffected by the decision. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

 Differential Analysis Make Bread (Alt. 1) or Buy Bread (Alt. 2) July 7 Make Bread (Alternative 1) Buy Bread (Alternative 2) Differential Effect on Income (Alternative 2) Sales price \$0 \$0 \$0 Unit Costs: Purchase price \$ \$ \$ Delivery Variable costs Fixed factory overhead Income (Loss) \$ \$ \$

Determine whether the company should make (Alternative 1) or buy (Alternative 2) the bread.

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Replace Equipment

A machine with a book value of \$245,900 has an estimated six-year life. A proposal is offered to sell the old machine for \$217,400 and replace it with a new machine at a cost of \$282,400. The new machine has a six-year life with no residual value. The new machine would reduce annual direct labor costs from \$50,900 to \$40,700.

Prepare a differential analysis dated October 3 on whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2). If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

 Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) October 3 Continue with Old Machine (Alternative 1) Replace Old Machine (Alternative 2) Differential Effect on Income (Alternative 2) Revenues: Proceeds from sale of old machine \$ \$ \$ Costs: Purchase price Direct labor (6 years) Income (Loss) \$ \$ \$

Should the company continue with the old machine (Alternative 1) or replace the old machine (Alternative 2)?

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Product A is produced for \$3.58 per pound. Product A can be sold without additional processing for \$4.02 per pound or processed further into Product B at an additional cost of \$0.45 per pound. Product B can be sold for \$4.32 per pound.

Prepare a differential analysis dated November 15 on whether to sell A (Alternative 1) or process further into B (Alternative 2). If required, round your answers to the nearest whole dollar. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

 Differential Analysis Sell Product A (Alt. 1) or Process Further into Product B (Alt. 2) November 15 Sell Product A (Alternative 1) Process Further into Product B (Alternative 2) Differential Effect on Income (Alternative 2) Revenues, per unit \$ \$ \$ Costs, per unit Income (Loss), per unit \$ \$ \$

Should Product A be sold (Alternative 1) or processed further into Product B (Alternative 2)?

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Product D is normally sold for \$41 per unit. A special price of \$31 is offered for the export market. The variable production cost is \$23 per unit. An additional export tariff of 13% of revenue must be paid for all export products. Assume that there is sufficient capacity for the special order.

Prepare a differential analysis dated March 16, on whether to reject (Alternative 1) or accept (Alternative 2) the special order. If required, round your answers to two decimal places. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

 Differential Analysis Reject Order (Alt. 1) or Accept Order (Alt. 2) March 16 Reject Order (Alternative 1) Accept Order (Alternative 2) Differential Effect on Income (Alternative 2) Revenues, per unit \$ \$ \$ Costs: Variable manufacturing costs, per unit Export tariff, per unit Income (Loss), per unit \$ \$ \$

Should the special order be rejected (Alternative 1) or accepted (Alternative 2)?

Solution 1

 Differential Analysis Continue Product A (Alt. 1) or Discontinue Product A (Alt. 2) May-09 Continue Product A (Alternative 1) Discontinue Product A (Alternative 2) Differential Effect on Income (Alternative 2) Revenues 195,000 0 195,000 Costs: Variable cost of goods sold 115,700 0 115,700 Variable selling and admin. Expenses 33,500 0 33,500 Fixed costs 60,900 60,900 0 Income (Loss) -15,100 -60,900 45,800

Product A should be continued as continuing will increase loss by \$45,800

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