The condensed productline income statement for Rhinebeck Company for the month of October is as follows:
Rhinebeck Company ProductLine Income Statement For the Month Ended October 31 

Hats  Gloves  Mufflers  
Sales  $65,700  $90,400  $27,200  
Cost of goods sold  (26,200)  (32,000)  (14,200)  
Gross profit  $39,500  $58,400  $13,000  
Selling and administrative expenses  (28,700)  (35,300)  (15,000)  
Operating income (loss)  $10,800  $23,100  $(2,000) 
Fixed costs are 15% of the cost of goods sold and 35% of the selling and administrative expenses. Rhinebeck Company assumes that fixed costs would not be materially affected if the Gloves line were discontinued.
a. Prepare a differential analysis dated October 31 to determine if Mufflers should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.
Differential Analysis  
Continue (Alt. 1) or Discontinue (Alt. 2) Mufflers  
October 31  
Continue Mufflers (Alternative 1) 
Discontinue Mufflers (Alternative 2) 
Differential Effects (Alternative 2) 

Revenues  $  $  $ 
Costs:  
Variable cost of goods sold  
Variable selling and admin. expenses  
Fixed costs  
Profit (Loss)  $  $  $ 
b. Should the Mufflers line be
retained?
Somerset Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $56 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 37% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows:
Direct materials  $28 
Direct labor  22 
Factory overhead (37% of direct labor)  8.14 
Total cost per unit  $58.14 
If Somerset Computer Company manufactures the carrying cases, fixed factory overhead costs will not increase and variable factory overhead costs associated with the cases are expected to be 16% of the direct labor costs.
a. Prepare a differential analysis dated April 30 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case. If required, round your answers to two decimal places. If an amount is zero, enter "0".
Differential Analysis  
Make Carrying Case (Alt. 1) or Buy Carrying Case (Alt. 2)  
April 30  
Make Carrying Case (Alternative 1) 
Buy Carrying Case (Alternative 2) 
Differential Effects (Alternative 2) 

Unit costs:  
Purchase price  $  $  $ 
Direct materials  
Direct labor  
Variable factory overhead  
Fixed factory overhead  
Total unit costs  $  $  $ 
b. Assuming there were no better alternative uses for the spare capacity, it would to manufacture the carrying cases. Fixed factory overhead is to this decision.
A company is considering replacing an old piece of machinery, which cost $599,800 and has $347,000 of accumulated depreciation to date, with a new machine that has a purchase price of $486,400. The old machine could be sold for $64,200. The annual variable production costs associated with the old machine are estimated to be $155,600 per year for eight years. The annual variable production costs for the new machine are estimated to be $101,500 per year for eight years.
a.1 Prepare a differential analysis dated May 29 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.
Differential Analysis  
Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)  
May 29  
Continue with Old Machine (Alternative 1) 
Replace Old Machine (Alternative 2) 
Differential Effects (Alternative 2) 

Revenues:  
Proceeds from sale of old machine  $  $  $ 
Costs:  
Purchase price  
Variable productions costs (8 years)  
Profit (Loss)  $  $  $ 
a.2 Determine whether to continue with
(Alternative 1) or replace (Alternative 2) the old machine.
b. What is the sunk cost in this situation?
The sunk cost is $.
oyer Digital Components Company assembles circuit boards by
using a manually operated machine to insert electronic components.
The original cost of the machine is $72,900, the accumulated
depreciation is $29,200, its remaining useful life is five years,
and its residual value is negligible. On May 4 of the current year,
a proposal was made to replace the present manufacturing procedure
with a fully automatic machine that has a purchase price of
$151,600. The automatic machine has an estimated useful life of
five years and no significant residual value. For use in evaluating
the proposal, the accountant accumulated the following annual data
on present and proposed operations:
Present Operations 
Proposed Operations 

Sales  $231,100  $231,100  
Direct materials  $78,700  $78,700  
Direct labor  54,700  —  
Power and maintenance  5,100  27,000  
Taxes, insurance, etc.  1,800  6,100  
Selling and administrative expenses  54,700  54,700  
Total expenses  $195,000  $166,500 
a. Prepare a differential analysis dated May 4 to determine whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2). Prepare the analysis over the useful life of the new machine. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.
Differential Analysis  
Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)  
May 4  
Continue with Old Machine (Alternative 1) 
Replace Old Machine (Alternative 2) 
Differential Effects (Alternative 2) 

Revenues:  
Sales (5 years)  $  $  $ 
Costs:  
Purchase price  
Direct materials (5 years)  
Direct labor (5 years)  
Power and maintenance (5 years)  
Taxes, insurance, etc. (5 years)  
Selling and admin. expenses (5 years)  
Profit (Loss)  $  $  $ 
b. Based only on the data presented, should the
proposal be accepted?
c. Differences in capacity between the two alternatives is to consider before a final decision is made.
Total Cost Method of Product Pricing
Smart Stream Inc. uses the total cost method of applying the costplus approach to product pricing. The costs of producing and selling 3,500 units of cell phones are as follows:
Variable costs per unit:  Fixed costs:  
Direct materials  $ 88  Factory overhead  $155,400  
Direct labor  40  Selling and administrative expenses  54,600  
Factory overhead  26  
Selling and administrative expenses  22  
Total variable cost per unit  $176 
Smart Stream desires a profit equal to a 14% return on invested assets of $472,000.
a. Determine the total costs and the total cost amount per unit for the production and sale of 3,500 cellular phones. Round the cost per unit to two decimal places.
Total cost  $ 
Total cost amount per unit  $ 
b. Determine the total cost markup percentage
for cellular phones. Round your answer to two decimal
places.
%
c. Determine the selling price of cellular
phones. Round to the nearest cent.
$ per cellular phone
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