\n<\/p>\n

<\/p>\n

Question 1<\/strong><\/p>\n

A family friend has asked your help in analyzing the operations of three anonymous companies operating in the same service sector industry. Supply the missing data in the table below: (Loss amounts should be indicated by a minus sign. Round your percentage answers to nearest whole percent and other amounts to whole dollars.)<\/strong><\/p>\n<\/p>\n

Question 2<\/strong><\/p>\n

Selected sales and operating data for three divisions of different structural engineering firms are given as follows:<\/p>\n\n\n\n\n\n\n\n\n
<\/td>\n \n
Division A<\/p>\n<\/td>\n
\n
Division B<\/p>\n<\/td>\n
\n
Division C<\/p>\n<\/td>\n<\/tr>\n
\n
Sales<\/p>\n<\/td>\n
\n
$<\/p>\n<\/td>\n
\n
15,250,000<\/p>\n<\/td>\n
<\/td>\n \n
$<\/p>\n<\/td>\n
\n
35,250,000<\/p>\n<\/td>\n
<\/td>\n \n
$<\/p>\n<\/td>\n
\n
25,250,000<\/p>\n<\/td>\n
<\/td>\n<\/tr>\n
\n
Average operating assets<\/p>\n<\/td>\n
\n
$<\/p>\n<\/td>\n
\n
3,050,000<\/p>\n<\/td>\n
<\/td>\n \n
$<\/p>\n<\/td>\n
\n
7,050,000<\/p>\n<\/td>\n
<\/td>\n \n
$<\/p>\n<\/td>\n
\n
5,050,000<\/p>\n<\/td>\n
<\/td>\n<\/tr>\n
\n
Net operating income<\/p>\n<\/td>\n
\n
$<\/p>\n<\/td>\n
\n
655,750<\/p>\n<\/td>\n
<\/td>\n \n
$<\/p>\n<\/td>\n
\n
528,750<\/p>\n<\/td>\n
<\/td>\n \n
$<\/p>\n<\/td>\n
\n
732,250<\/p>\n<\/td>\n
<\/td>\n<\/tr>\n
\n
Minimum required rate of return<\/p>\n<\/td>\n
<\/td>\n \n
9.00<\/p>\n<\/td>\n
\n
%<\/p>\n<\/td>\n
<\/td>\n \n
9.50<\/p>\n<\/td>\n
\n
%<\/p>\n<\/td>\n
<\/td>\n \n
14.50<\/p>\n<\/td>\n
\n
%<\/p>\n<\/td>\n<\/tr>\n
\n
\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n
Required:<\/strong><\/p>\n
1. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover.<\/p>\n
2. Compute the residual income (loss) for each division.<\/p>\n
3. Assume that each division is presented with an investment opportunity that would yield a 10% rate of return.<\/p>\n
a. If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity?<\/p>\n
b. If performance is being measured by residual income, which division or divisions will probably accept or reject the opportunity?<\/p>\n
Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. (Do not round intermediate calculations. Round your answers to 2 decimal places.)<\/p>\n\n\n\n\n
<\/td>\n<\/tr>\n
<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n\n\n
\n
<\/textarea><\/p>\n<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td colspan=\"2\"><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td>\n<table>\n<tbody>\n<tr>\n<td><\/td>\n<td colspan=\"2\">\n<p><strong>Margin<\/strong><strong><\/strong><\/p>\n<\/td>\n<td>\n<p><strong>Turnover<\/strong><\/p>\n<\/td>\n<td colspan=\"2\">\n<p><strong>ROI<\/strong><\/p>\n<\/td>\n<\/tr>\n<tr>\n<td>\n<p>Division A<\/p>\n<\/td>\n<td><\/td>\n<td>\n<p>%<\/p>\n<\/td>\n<td><\/td>\n<td><\/td>\n<td>\n<p>%<\/p>\n<\/td>\n<\/tr>\n<tr>\n<td>\n<p>Division B<\/p>\n<\/td>\n<td><\/td>\n<td>\n<p>%<\/p>\n<\/td>\n<td><\/td>\n<td><\/td>\n<td>\n<p>%<\/p>\n<\/td>\n<\/tr>\n<tr>\n<td>\n<p>Division C<\/p>\n<\/td>\n<td><\/td>\n<td>\n<p>%<\/p>\n<\/td>\n<td><\/td>\n<td><\/td>\n<td>\n<p>%<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>Compute the residual income (loss) for each division. (Do not round intermediate calculations. Loss amounts should be indicated by a minus sign.)<\/p>\n<table>\n<tbody>\n<tr>\n<td><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<table>\n<tbody>\n<tr>\n<td colspan=\"2\">\n<p><textarea><\/textarea><\/p>\n<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td colspan=\"2\"><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td>\n<table>\n<tbody>\n<tr>\n<td><\/td>\n<td>\n<p><strong>Division A<\/strong><strong><\/strong><\/p>\n<\/td>\n<td>\n<p><strong>Division B<\/strong><\/p>\n<\/td>\n<td>\n<p><strong>Division C<\/strong><\/p>\n<\/td>\n<\/tr>\n<tr>\n<td>\n<p>Residual income (loss)<\/p>\n<\/td>\n<td><\/td>\n<td><\/td>\n<td>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>Assume that each division is presented with an investment opportunity that would yield a 10% rate of return. If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity?<\/p>\n<table>\n<tbody>\n<tr>\n<td><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<table>\n<tbody>\n<tr>\n<td colspan=\"2\">\n<p><textarea><\/textarea><\/p>\n<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td colspan=\"2\"><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td>\n<table>\n<tbody>\n<tr>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\n<p>Division A<\/p>\n<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\n<p>Division B<\/p>\n<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\n<p>Division C<\/p>\n<\/td>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>Assume that each division is presented with an investment opportunity that would yield a 10% rate of return. If performance is being measured by residual income, which division or divisions will probably accept or reject the opportunity?<\/p>\n<table>\n<tbody>\n<tr>\n<td><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<table>\n<tbody>\n<tr>\n<td colspan=\"2\">\n<p><textarea><\/textarea><\/p>\n<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td colspan=\"2\"><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td>\n<table>\n<tbody>\n<tr>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\n<p>Division A<\/p>\n<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\n<p>Division B<\/p>\n<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\n<p>Division C<\/p>\n<\/td>\n<td>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p><strong>Question 3<\/strong><\/p>\n<p>Financial data for Joel de Paris, Inc., for last year follow:<\/p>\n<table>\n<tbody>\n<tr>\n<td colspan=\"7\">\n<p>Joel de Paris, Inc.<br \/> Balance Sheet<\/p>\n<\/td>\n<\/tr>\n<tr>\n<td> <\/td>\n<td colspan=\"2\">\n<p>Beginning<br \/> Balance<\/p>\n<\/td>\n<td> <\/td>\n<td colspan=\"3\">\n<p>Ending<br \/> Balance<\/p>\n<\/td>\n<\/tr>\n<tr>\n<td colspan=\"7\">\n<p><strong>Assets<\/strong><\/p>\n<\/td>\n<\/tr>\n<tr>\n<td>\n<p>Cash<\/p>\n<\/td>\n<td>\n<p>$<\/p>\n<\/td>\n<td>\n<p>126,000<\/p>\n<\/td>\n<td> <\/td>\n<td>\n<p>$<\/p>\n<\/td>\n<td>\n<p>132,000<\/p>\n<\/td>\n<td> <\/td>\n<\/tr>\n<tr>\n<td>\n<p>Accounts receivable<\/p>\n<\/td>\n<td> <\/td>\n<td>\n<p>341,000<\/p>\n<\/td>\n<td> <\/td>\n<td> <\/td>\n<td>\n<p>479,000<\/p>\n<\/td>\n<td> <\/td>\n<\/tr>\n<tr>\n<td>\n<p>Inventory<\/p>\n<\/td>\n<td> <\/td>\n<td>\n<p>565,000<\/p>\n<\/td>\n<td> <\/td>\n<td> <\/td>\n<td>\n<p>488,000<\/p>\n<\/td>\n<td> <\/td>\n<\/tr>\n<tr>\n<td>\n<p>Plant and equipment, net<\/p>\n<\/td>\n<td> <\/td>\n<td>\n<p>878,000<\/p>\n<\/td>\n<td> <\/td>\n<td> <\/td>\n<td>\n<p>851,000<\/p>\n<\/td>\n<td> <\/td>\n<\/tr>\n<tr>\n<td>\n<p>Investment in Buisson, S.A.<\/p>\n<\/td>\n<td> <\/td>\n<td>\n<p>390,000<\/p>\n<\/td>\n<td> <\/td>\n<td> <\/td>\n<td>\n<p>429,000<\/p>\n<\/td>\n<td> <\/td>\n<\/tr>\n<tr>\n<td>\n<p>Land (undeveloped)<\/p>\n<\/td>\n<td> <\/td>\n<td>\n<p>255,000<\/p>\n<\/td>\n<td> <\/td>\n<td> <\/td>\n<td>\n<p>247,000<\/p>\n<\/td>\n<td> <\/td>\n<\/tr>\n<tr>\n<td>\n<p>Total assets<\/p>\n<\/td>\n<td>\n<p>$<\/p>\n<\/td>\n<td>\n<p>2,555,000<\/p>\n<\/td>\n<td> <\/td>\n<td>\n<p>$<\/p>\n<\/td>\n<td>\n<p>2,626,000<\/p>\n<\/td>\n<td> <\/td>\n<\/tr>\n<tr>\n<td colspan=\"7\">\n<p><strong>Liabilities and Stockholders’ Equity<\/strong><\/p>\n<\/td>\n<\/tr>\n<tr>\n<td>\n<p>Accounts payable<\/p>\n<\/td>\n<td>\n<p>$<\/p>\n<\/td>\n<td>\n<p>379,000<\/p>\n<\/td>\n<td> <\/td>\n<td>\n<p>$<\/p>\n<\/td>\n<td>\n<p>339,000<\/p>\n<\/td>\n<td> <\/td>\n<\/tr>\n<tr>\n<td>\n<p>Long-term debt<\/p>\n<\/td>\n<td> <\/td>\n<td>\n<p>954,000<\/p>\n<\/td>\n<td> <\/td>\n<td> <\/td>\n<td>\n<p>954,000<\/p>\n<\/td>\n<td> <\/td>\n<\/tr>\n<tr>\n<td>\n<p>Stockholders’ equity<\/p>\n<\/td>\n<td> <\/td>\n<td>\n<p>1,222,000<\/p>\n<\/td>\n<td> <\/td>\n<td> <\/td>\n<td>\n<p>1,333,000<\/p>\n<\/td>\n<td> <\/td>\n<\/tr>\n<tr>\n<td>\n<p>Total liabilities and stockholders’ equity<\/p>\n<\/td>\n<td>\n<p>$<\/p>\n<\/td>\n<td>\n<p>2,555,000<\/p>\n<\/td>\n<td> <\/td>\n<td>\n<p>$<\/p>\n<\/td>\n<td>\n<p>2,626,000<\/p>\n<\/td>\n<td> <\/td>\n<\/tr>\n<tr>\n<td colspan=\"7\">\n<hr>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p> <\/p>\n<table>\n<tbody>\n<tr>\n<td colspan=\"7\">\n<p>Joel de Paris, Inc.<br \/> Income Statement<\/p>\n<\/td>\n<td> <\/td>\n<\/tr>\n<tr>\n<td>\n<p>Sales<\/p>\n<\/td>\n<td> <\/td>\n<td> <\/td>\n<td> <\/td>\n<td> <\/td>\n<td>\n<p>$<\/p>\n<\/td>\n<td>\n<p>4,053,000<\/p>\n<\/td>\n<td> <\/td>\n<\/tr>\n<tr>\n<td>\n<p>Operating expenses<\/p>\n<\/td>\n<td> <\/td>\n<td> <\/td>\n<td> <\/td>\n<td> <\/td>\n<td> <\/td>\n<td>\n<p>3,526,110<\/p>\n<\/td>\n<td> <\/td>\n<\/tr>\n<tr>\n<td>\n<p>Net operating income<\/p>\n<\/td>\n<td> <\/td>\n<td> <\/td>\n<td> <\/td>\n<td> <\/td>\n<td> <\/td>\n<td>\n<p>526,890<\/p>\n<\/td>\n<td> <\/td>\n<\/tr>\n<tr>\n<td>\n<p>Interest and taxes:<\/p>\n<\/td>\n<td> <\/td>\n<td> <\/td>\n<td> <\/td>\n<td> <\/td>\n<td> <\/td>\n<td> <\/td>\n<td> <\/td>\n<\/tr>\n<tr>\n<td>\n<p>Interest expense<\/p>\n<\/td>\n<td>\n<p>$<\/p>\n<\/td>\n<td>\n<p>120,000<\/p>\n<\/td>\n<td> <\/td>\n<td> <\/td>\n<td> <\/td>\n<td> <\/td>\n<td> <\/td>\n<\/tr>\n<tr>\n<td>\n<p>Tax expense<\/p>\n<\/td>\n<td> <\/td>\n<td>\n<p>193,000<\/p>\n<\/td>\n<td> <\/td>\n<td> <\/td>\n<td> <\/td>\n<td>\n<p>313,000<\/p>\n<\/td>\n<td> <\/td>\n<\/tr>\n<tr>\n<td>\n<p>Net income<\/p>\n<\/td>\n<td> <\/td>\n<td> <\/td>\n<td> <\/td>\n<td> <\/td>\n<td>\n<p>$<\/p>\n<\/td>\n<td>\n<p>213,890<\/p>\n<\/td>\n<td> <\/td>\n<\/tr>\n<tr>\n<td colspan=\"8\">\n<hr>\n<\/td>\n<td> <\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p> The company paid dividends of $102,890 last year. The \u201cInvestment in Buisson, S.A.,\u201d on the balance sheet represents an investment in the stock of another company. The company’s minimum required rate of return of 15%.<\/p>\n<p><strong>Required:<\/strong><\/p>\n<p>1. Compute the company’s average operating assets for last year.<\/p>\n<p>2. Compute the company\u2019s margin, turnover, and return on investment (ROI) for last year. <strong>(Round “Margin”, “Turnover” and “ROI” to 2 decimal places.)<\/strong><\/p>\n<p>3. What was the company\u2019s residual income last year?<\/p>\n<p><strong>Question 4<\/strong><\/p>\n<p>Delta Company produces a single product. The cost of producing and selling a single unit of this product at the company\u2019s normal activity level of 93,600 units per year is:<\/p>\n<table>\n<tbody>\n<tr>\n<td> <\/td>\n<td> <\/td>\n<td> <\/td>\n<td> <\/td>\n<\/tr>\n<tr>\n<td>\n<p>Direct materials<\/p>\n<\/td>\n<td>\n<p>$<\/p>\n<\/td>\n<td>\n<p>1.80<\/p>\n<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\n<p>Direct labor<\/p>\n<\/td>\n<td>\n<p>$<\/p>\n<\/td>\n<td>\n<p>2.00<\/p>\n<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\n<p>Variable manufacturing overhead<\/p>\n<\/td>\n<td>\n<p>$<\/p>\n<\/td>\n<td>\n<p>0.90<\/p>\n<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\n<p>Fixed manufacturing overhead<\/p>\n<\/td>\n<td>\n<p>$<\/p>\n<\/td>\n<td>\n<p>4.25<\/p>\n<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\n<p>Variable selling and administrative expenses<\/p>\n<\/td>\n<td>\n<p>$<\/p>\n<\/td>\n<td>\n<p>1.10<\/p>\n<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\n<p>Fixed selling and administrative expenses<\/p>\n<\/td>\n<td>\n<p>$<\/p>\n<\/td>\n<td>\n<p>1.00<\/p>\n<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td colspan=\"3\">\n<hr>\n<\/td>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>The normal selling price is $25.00 per unit. The company\u2019s capacity is 118,800 units per year. An order has been received from a mail-order house for 2,100 units at a special price of $22.00 per unit. This order would not affect regular sales or the company\u2019s total fixed costs.<\/p>\n<p><strong>Required:<\/strong><\/p>\n<p>1. What is the financial advantage (disadvantage) of accepting the special order?<\/p>\n<p>2. As a separate matter from the special order, assume the company\u2019s inventory includes 1,000 units of this product that were produced last year and that are inferior to the current model. The units must be sold through regular channels at reduced prices. What unit cost is relevant for establishing a minimum selling price for these units?<\/p>\n<p>What is the financial advantage (disadvantage) of accepting the special order?<\/p>\n<table>\n<tbody>\n<tr>\n<td><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<table>\n<tbody>\n<tr>\n<td colspan=\"2\">\n<p><textarea><\/textarea><\/p>\n<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td colspan=\"2\"><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td>\n<table>\n<tbody>\n<tr>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>As a separate matter from the special order, assume the company\u2019s inventory includes 1,000 units of this product that were produced last year and that are inferior to the current model. The units must be sold through regular channels at reduced prices. What unit cost is relevant for establishing a minimum selling price for these units? (Round your answer to 2 decimal places.)<\/p>\n<p><a><span class=\"showless\"><strong>Show less<\/strong><\/span><\/a><\/p>\n<table>\n<tbody>\n<tr>\n<td><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<table>\n<tbody>\n<tr>\n<td colspan=\"2\">\n<p><textarea><\/textarea><\/p>\n<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td colspan=\"2\"><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td>\n<table>\n<tbody>\n<tr>\n<td>\n<p>Relevant cost per unit<\/p>\n<\/td>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p><strong>Question 5<\/strong><\/p>\n<p>Futura Company purchases the 69,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $13.30 per unit. Due to a reduction in output, the company now has idle capacity that could be used to produce the starters rather than buying them from an outside supplier. However, the company\u2019s chief engineer is opposed to making the starters because the production cost per unit is $13.80 as shown below:<\/p>\n<table>\n<tbody>\n<tr>\n<td> <\/td>\n<td colspan=\"3\">\n<p>Per Unit<\/p>\n<\/td>\n<td colspan=\"3\">\n<p>Total<\/p>\n<\/td>\n<\/tr>\n<tr>\n<td>\n<p>Direct materials<\/p>\n<\/td>\n<td>\n<p>$<\/p>\n<\/td>\n<td>\n<p>7.00<\/p>\n<\/td>\n<td> <\/td>\n<td> <\/td>\n<td> <\/td>\n<td> <\/td>\n<\/tr>\n<tr>\n<td>\n<p>Direct labor<\/p>\n<\/td>\n<td> <\/td>\n<td>\n<p>2.80<\/p>\n<\/td>\n<td> <\/td>\n<td> <\/td>\n<td> <\/td>\n<td> <\/td>\n<\/tr>\n<tr>\n<td>\n<p>Supervision<\/p>\n<\/td>\n<td> <\/td>\n<td>\n<p>1.60<\/p>\n<\/td>\n<td> <\/td>\n<td>\n<p>$<\/p>\n<\/td>\n<td>\n<p>110,400<\/p>\n<\/td>\n<td> <\/td>\n<\/tr>\n<tr>\n<td>\n<p>Depreciation<\/p>\n<\/td>\n<td> <\/td>\n<td>\n<p>1.30<\/p>\n<\/td>\n<td> <\/td>\n<td>\n<p>$<\/p>\n<\/td>\n<td>\n<p>89,700<\/p>\n<\/td>\n<td> <\/td>\n<\/tr>\n<tr>\n<td>\n<p>Variable manufacturing overhead<\/p>\n<\/td>\n<td> <\/td>\n<td>\n<p>0.50<\/p>\n<\/td>\n<td> <\/td>\n<td> <\/td>\n<td> <\/td>\n<td> <\/td>\n<\/tr>\n<tr>\n<td>\n<p>Rent<\/p>\n<\/td>\n<td> <\/td>\n<td>\n<p>0.60<\/p>\n<\/td>\n<td> <\/td>\n<td>\n<p>$<\/p>\n<\/td>\n<td>\n<p>41,400<\/p>\n<\/td>\n<td> <\/td>\n<\/tr>\n<tr>\n<td>\n<p>Total product cost<\/p>\n<\/td>\n<td>\n<p>$<\/p>\n<\/td>\n<td>\n<p>13.80<\/p>\n<\/td>\n<td> <\/td>\n<td> <\/td>\n<td> <\/td>\n<td> <\/td>\n<\/tr>\n<tr>\n<td colspan=\"7\">\n<hr>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $110,400) to oversee production. However, the company has sufficient idle tools and machinery such that no new equipment would have to be purchased. The rent charge above is based on space utilized in the plant. The total rent on the plant is $84,000 per period. Depreciation is due to obsolescence rather than wear and tear.<\/p>\n<p><strong>Required:<\/strong><\/p>\n<p>What is the financial advantage (disadvantage) of making the 69,000 starters instead of buying them from an outside supplier?<\/p>\n<p><strong>Question 6<\/strong><\/p>\n<p>Andretti Company has a single product called a Dak. The company normally produces and sells 81,000 Daks each year at a selling price of $62 per unit. The company\u2019s unit costs at this level of activity are given below:<\/p>\n<table>\n<tbody>\n<tr>\n<td> <\/td>\n<td> <\/td>\n<td> <\/td>\n<td> <\/td>\n<\/tr>\n<tr>\n<td>\n<p>Direct materials<\/p>\n<\/td>\n<td>\n<p>$<\/p>\n<\/td>\n<td>\n<p>7.50<\/p>\n<\/td>\n<td> <\/td>\n<\/tr>\n<tr>\n<td>\n<p>Direct labor<\/p>\n<\/td>\n<td> <\/td>\n<td>\n<p>11.00<\/p>\n<\/td>\n<td> <\/td>\n<\/tr>\n<tr>\n<td>\n<p>Variable manufacturing overhead<\/p>\n<\/td>\n<td> <\/td>\n<td>\n<p>2.50<\/p>\n<\/td>\n<td> <\/td>\n<\/tr>\n<tr>\n<td>\n<p>Fixed manufacturing overhead<\/p>\n<\/td>\n<td> <\/td>\n<td>\n<p>9.00<\/p>\n<\/td>\n<td>\n<p>($729,000 total)<\/p>\n<\/td>\n<\/tr>\n<tr>\n<td>\n<p>Variable selling expenses<\/p>\n<\/td>\n<td> <\/td>\n<td>\n<p>2.70<\/p>\n<\/td>\n<td> <\/td>\n<\/tr>\n<tr>\n<td>\n<p>Fixed selling expenses<\/p>\n<\/td>\n<td> <\/td>\n<td>\n<p>3.50<\/p>\n<\/td>\n<td>\n<p>($283,500 total)<\/p>\n<\/td>\n<\/tr>\n<tr>\n<td>\n<p>Total cost per unit<\/p>\n<\/td>\n<td>\n<p>$<\/p>\n<\/td>\n<td>\n<p>36.20<\/p>\n<\/td>\n<td> <\/td>\n<\/tr>\n<tr>\n<td colspan=\"4\">\n<hr>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>A number of questions relating to the production and sale of Daks follow. Each question is independent.<\/p>\n<p><strong>Required:<\/strong><\/p>\n<p>1-a. Assume that Andretti Company has sufficient capacity to produce 97,200 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 20% above the present 81,000 units each year if it were willing to increase the fixed selling expenses by $110,000. What is the financial advantage (disadvantage) of investing an additional $110,000 in fixed selling expenses?<\/p>\n<p>1-b. Would the additional investment be justified?<\/p>\n<p>2. Assume again that Andretti Company has sufficient capacity to produce 97,200 Daks each year. A customer in a foreign market wants to purchase 16,200 Daks. If Andretti accepts this order it would have to pay import duties on the Daks of $3.70 per unit and an additional $8,100 for permits and licenses. The only selling costs that would be associated with the order would be $2.20 per unit shipping cost. What is the break-even price per unit on this order?<\/p>\n<p>3. The company has 400 Daks on hand that have some irregularities and are therefore considered to be “seconds.” Due to the irregularities, it will be impossible to sell these units at the normal price through regular distribution channels. What is the unit cost figure that is relevant for setting a minimum selling price?<\/p>\n<p>4. Due to a strike in its supplier\u2019s plant, Andretti Company is unable to purchase more material for the production of Daks. The strike is expected to last for two months. Andretti Company has enough material on hand to operate at 25% of normal levels for the two-month period. As an alternative, Andretti could close its plant down entirely for the two months. If the plant were closed, fixed manufacturing overhead costs would continue at 35% of their normal level during the two-month period and the fixed selling expenses would be reduced by 20% during the two-month period.<\/p>\n<p>a. How much total contribution margin will Andretti forgo if it closes the plant for two months?<\/p>\n<p>b. How much total fixed cost will the company avoid if it closes the plant for two months?<\/p>\n<p>c. What is the financial advantage (disadvantage) of closing the plant for the two-month period? <\/p>\n<p>d. Should Andretti close the plant for two months?<\/p>\n<p>5. An outside manufacturer has offered to produce 81,000 Daks and ship them directly to Andretti\u2019s customers. If Andretti Company accepts this offer, the facilities that it uses to produce Daks would be idle; however, fixed manufacturing overhead costs would be reduced by 30%. Because the outside manufacturer would pay for all shipping costs, the variable selling expenses would be only two-thirds of their present amount. What is Andretti\u2019s avoidable cost per unit that it should compare to the price quoted by the outside manufacturer?<\/p>\n<p>Assume that <span class=\"scayt-misspell-word\">Andretti<\/span> Company has sufficient capacity to produce 97,200 <span class=\"scayt-misspell-word\">Daks<\/span> each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 20% above the present 81,000 units each year if it were willing to increase the fixed selling expenses by $110,000. What is the financial advantage (disadvantage) of investing an additional $110,000 in fixed selling expenses?<\/p>\n<table>\n<tbody>\n<tr>\n<td><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<table>\n<tbody>\n<tr>\n<td colspan=\"2\">\n<p><textarea><\/textarea><\/p>\n<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td colspan=\"2\"><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td>\n<table>\n<tbody>\n<tr>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>Assume that <span class=\"scayt-misspell-word\">Andretti<\/span> Company has sufficient capacity to produce 97,200 <span class=\"scayt-misspell-word\">Daks<\/span> each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 20% above the present 81,000 units each year if it were willing to increase the fixed selling expenses by $110,000. Would the additional investment be justified?<\/p>\n<table>\n<tbody>\n<tr>\n<td><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<table>\n<tbody>\n<tr>\n<td colspan=\"2\">\n<p><textarea><\/textarea><\/p>\n<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td colspan=\"2\"><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td>\n<table>\n<tbody>\n<tr>\n<td>\n<p><input>Yes<\/p>\n<\/td>\n<\/tr>\n<tr>\n<td>\n<p><input>No<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>Assume again that Andretti Company has sufficient capacity to produce 97,200 Daks each year. A customer in a foreign market wants to purchase 16,200 Daks. If Andretti accepts this order it would have to pay import duties on the Daks of $3.70 per unit and an additional $8,100 for permits and licenses. The only selling costs that would be associated with the order would be $2.20 per unit shipping cost. What is the break-even price per unit on this order? (Round your answers to 2 decimal places.)<\/p>\n<p><a><span class=\"showless\"><strong>Show less<\/strong><\/span><\/a><\/p>\n<table>\n<tbody>\n<tr>\n<td><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<table>\n<tbody>\n<tr>\n<td colspan=\"2\">\n<p><textarea><\/textarea><\/p>\n<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td colspan=\"2\"><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td>\n<table>\n<tbody>\n<tr>\n<td>\n<p>Break-even price per unit<\/p>\n<\/td>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>The company has 400 Daks on hand that have some irregularities and are therefore considered to be “seconds.” Due to the irregularities, it will be impossible to sell these units at the normal price through regular distribution channels. What is the unit cost figure that is relevant for setting a minimum selling price? (Round your answer to 2 decimal places.)<\/p>\n<table>\n<tbody>\n<tr>\n<td><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<table>\n<tbody>\n<tr>\n<td colspan=\"2\">\n<p><textarea><\/textarea><\/p>\n<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td colspan=\"2\"><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td>\n<table>\n<colgroup>\n<col>\n<col>\n<col><\/colgroup>\n<tbody>\n<tr>\n<td>\n<p>Relevant unit cost<\/p>\n<\/td>\n<td><\/td>\n<td>\n<p>per unit<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>Due to a strike in its supplier\u2019s plant, Andretti Company is unable to purchase more material for the production of Daks. The strike is expected to last for two months. Andretti Company has enough material on hand to operate at 25% of normal levels for the two-month period. As an alternative, Andretti could close its plant down entirely for the two months. If the plant were closed, fixed manufacturing overhead costs would continue at 35% of their normal level during the two-month period and the fixed selling expenses would be reduced by 20% during the two-month period. (Round number of units produced to the nearest whole number. Round your intermediate calculations and final answers to 2 decimal places. Any losses\/reductions should be indicated by a minus sign.)<\/p>\n<p> a. How much total contribution margin will Andretti forgo if it closes the plant for two months?<br \/> b. How much total fixed cost will the company avoid if it closes the plant for two months?<br \/> c. What is the financial advantage (disadvantage) of closing the plant for the two-month period?<\/p>\n<p><a aria-label=\"Due to a strike in its supplier\u2019s plant, Andretti Company is unable to purchase more material for the production of Daks. The strike is expected to last for two months. Andretti Company has enough material on hand to operate at {{[nlop]:#,###}}% of normal levels for the two-month period. As an alternative, Andretti could close its plant down entirely for the two months. If the plant were closed, fixed manufacturing overhead costs would continue at {{[incfmoh]:#,###}}% of their normal level during the two-month period and the fixed selling expenses would be reduced by 20% during the two-month period. (Round number of units produced to the nearest whole number. Round your intermediate calculations and final answers to 2 decimal places. Any losses\/reductions should be indicated by a minus sign.)a. How much total contribution margin will Andretti forgo if it closes the plant for two months?b. How much total fixed cost will the company avoid if it closes the plant for two months?c. What is the financial advantage (disadvantage) of closing the plant for the two-month period? show less\"><span class=\"showless\"><strong>Show less<\/strong><\/span><\/a><\/p>\n<table>\n<tbody>\n<tr>\n<td><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<table>\n<tbody>\n<tr>\n<td colspan=\"2\">\n<p><textarea><\/textarea><\/p>\n<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td colspan=\"2\"><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td>\n<table>\n<colgroup>\n<col>\n<col><\/colgroup>\n<tbody>\n<tr>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\n<p>Forgone contribution margin<\/p>\n<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\n<p>Total avoidable fixed costs<\/p>\n<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\n<p>Financial advantage (disadvantage)<\/p>\n<\/td>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>Due to a strike in its supplier\u2019s plant, Andretti Company is unable to purchase more material for the production of Daks. The strike is expected to last for two months. Andretti Company has enough material on hand to operate at 25% of normal levels for the two-month period. As an alternative, Andretti could close its plant down entirely for the two months. If the plant were closed, fixed manufacturing overhead costs would continue at 35% of their normal level during the two-month period and the fixed selling expenses would be reduced by 20% during the two-month period. Should Andretti close the plant for two months?<\/p>\n<p><a aria-label=\"Due to a strike in its supplier\u2019s plant, Andretti Company is unable to purchase more material for the production of Daks. The strike is expected to last for two months. Andretti Company has enough material on hand to operate at {{[nlop]:#,###}}% of normal levels for the two-month period. As an alternative, Andretti could close its plant down entirely for the two months. If the plant were closed, fixed manufacturing overhead costs would continue at {{[incfmoh]:#,###}}% of their normal level during the two-month period and the fixed selling expenses would be reduced by 20% during the two-month period. Should Andretti close the plant for two months? show less\"><span class=\"showless\"><strong>Show less<\/strong><\/span><\/a><\/p>\n<table>\n<tbody>\n<tr>\n<td><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<table>\n<tbody>\n<tr>\n<td colspan=\"2\">\n<p><textarea><\/textarea><\/p>\n<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td colspan=\"2\"><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td>\n<table>\n<colgroup>\n<col><\/colgroup>\n<tbody>\n<tr>\n<td>\n<p><input>Yes<\/p>\n<\/td>\n<\/tr>\n<tr>\n<td>\n<p><input>No<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>An outside manufacturer has offered to produce 81,000 Daks and ship them directly to Andretti\u2019s customers. If Andretti Company accepts this offer, the facilities that it uses to produce Daks would be idle; however, fixed manufacturing overhead costs would be reduced by 30%. Because the outside manufacturer would pay for all shipping costs, the variable selling expenses would be only two-thirds of their present amount. What is Andretti\u2019s avoidable cost per unit that it should compare to the price quoted by the outside manufacturer? (Do not round intermediate calculations. Round your answers to 2 decimal places.)<\/p>\n<p><a aria-label=\"An outside manufacturer has offered to produce {{[noz]:#,###}} Daks and ship them directly to Andretti\u2019s customers. If Andretti Company accepts this offer, the facilities that it uses to produce Daks would be idle; however, fixed manufacturing overhead costs would be reduced by {{[fmccon]:#,###}}%. Because the outside manufacturer would pay for all shipping costs, the variable selling expenses would be only two-thirds of their present amount. What is Andretti\u2019s avoidable cost per unit that it should compare to the price quoted by the outside manufacturer? (Do not round intermediate calculations. Round your answers to 2 decimal places.) show less\"><span class=\"showless\"><strong>Show less<\/strong><\/span><\/a><\/p>\n<table>\n<tbody>\n<tr>\n<td><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<table>\n<tbody>\n<tr>\n<td colspan=\"2\">\n<p><textarea><\/textarea><\/p>\n<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td colspan=\"2\"><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td>\n<table>\n<colgroup>\n<col>\n<col><\/colgroup>\n<tbody>\n<tr>\n<td>\n<p>Avoidable cost per unit<\/p>\n<\/td>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Question 1 A family friend has asked your help in analyzing the operations of three anonymous companies operating in the same service sector industry. Supply the missing data in the table below: (Loss amounts should be indicated by a minus sign. Round your percentage answers to nearest whole percent and other amounts to whole dollars.) […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_joinchat":[]},"categories":[1],"tags":[],"_links":{"self":[{"href":"https:\/\/qualityassignments.net\/wp-json\/wp\/v2\/posts\/268314"}],"collection":[{"href":"https:\/\/qualityassignments.net\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/qualityassignments.net\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/qualityassignments.net\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/qualityassignments.net\/wp-json\/wp\/v2\/comments?post=268314"}],"version-history":[{"count":0,"href":"https:\/\/qualityassignments.net\/wp-json\/wp\/v2\/posts\/268314\/revisions"}],"wp:attachment":[{"href":"https:\/\/qualityassignments.net\/wp-json\/wp\/v2\/media?parent=268314"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/qualityassignments.net\/wp-json\/wp\/v2\/categories?post=268314"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/qualityassignments.net\/wp-json\/wp\/v2\/tags?post=268314"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}