Question

Question 4

The Blade Division of Dana Company produces hardened steel blades. Approximately one-third of the Blade Division's output is sold to the Lawn Products Division of Dana; the remainder is sold to outside customers. Blade Division's estimated sales and cost data for the year ending June 30^th are as follows:

	Sales to Lawn Products Division				Sales to Outsiders
Revenue	$	30,000			$	80,000
Variable costs		20,000				40,000
Fixed costs		5,200				22,500
Gross margin	$	4,800			$	17,500
Unit sales		20,000				40,000

The Lawn Products Division has an opportunity to purchase, on a continual basis, 10,000 blades (of identical quality) from an outside supplier, at a cost of $1.80 per unit. Assume that the Blade Division cannot sell any additional products to outside customers. Assume, too, that there are no short-term avoidable fixed costs. Based solely on short-term financial considerations, should Dana allow its Lawn Products Division to purchase the blades from the outside supplier, and why?

Multiple Choice

• Yes, because buying the blades would save Dana Company $6,000.

• No, because making the blades would save Dana Company $7,000.

• Yes, because buying the blades would save Dana Company $8,000.

• No, because making the blades would save Dana Company $8,000.

The Sand Cruiser is a takeout food store at a popular beachside resort. Teresa Texton, owner of the Sand Cruiser, was deciding how much refrigerator space to devote to four different beverages. Appropriate data on the four beverages follow:

	Limeade	Lemonade	Ginger Ale	Grape Juice
Sales price per case	$22.20	$28.00	$21.20	$47.10
Variable cost per case	15.70	17.90	16.20	35.50
Cases sold per foot of shelf space per day	34	29	7	4

The contribution per foot of shelf space per day for Limeade is:

Multiple Choice

• $224.00.

• $221.00.

• $213.00.

• $193.40.

• $212.90.

Answer 1

Question 4

The blade division

There are no avoidable fixed costs in the given case. This implies that fixed costs would be irrelevant in making this decision. This means that even if it was outsourced fixed costs would continue to be incurred without any change.

This means there will be a comparison of variable costs.

Variable costs are 20,000 / 20,000 = $ 1

This means for 10,000 units making charges are 10,000 X 1 = $ 10,000

Buying cost is 10,000 X 1.8 = $ 18,000

This means company can save 8,000 by MAKING

Option D is correct

Sand Cruiser

	Limeade
Sale price per case	$   22.20
Variable cost per case	$   15.70
Contribution per case	$      6.50
Cases sold per foot of shelf space	34
Contribution per foot	$ 221.00

Answer is 221