Q1. Tajiri Corporation uses customers served as its measure of activity. The following report compares the planning budget to the actual operating results for the month of May:.
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Tajiri Corporation Comparison of Planning Budget to Actual Results
For the Month Ended May 31
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Planning
Budget
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Actual
Results
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Variances
|
|
Customers served
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23,000
|
24,000
|
|
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Revenue (3.60q)
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$82,800
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$86,700
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$3,900F
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|
Expenses:
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|
|
|
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Wages and salaries ($22,300 + $1.13q)
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48,290
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49,420
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1,130U
|
|
Supplies ($0.53q)
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12,190
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10,990
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1,200F
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|
Insurance ($4,200)
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4,200
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4,200
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0
|
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Miscellaneous expense ($3,200 + $.33q)
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10,790
|
9,590
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1,200F
|
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Total expense
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75,470
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74,200
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1,270F
|
|
Net operating income
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$7,330
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$12,500
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$5,170F
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Prepare the company's flexible budget performance report for May. Label each variance as favorable (F) or unfavorable (U).
Q2. An outside supplier has offered to sell the company all of these parts it needs for $43.00 a unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units of a product that is in high demand. The additional contribution margin on this other product would be $18,700 per year.
If the part were purchased from the outside supplier, all of the direct labor cost of the part would be avoided. However, $5.70 of the fixed manufacturing overhead cost being applied to the part would continue even if the part were purchased from the outside supplier. This fixed manufacturing overhead cost would be applied to the company's remaining products.
Required:
a. How much of the unit product cost of $50.70 is relevant in the decision of whether to make or buy the part?
What is the net total dollar advantage (disadvantage) of purchasing the part rather than making it?
c. What is the maximum amount the company should be willing to pay an outside supplier per unit for the part if the supplier commits to supplying all 17,000 units required each year?
Q3. Part O43 is used in one of Scheetz Corporation's products. The company's Accounting Department reports the following costs of producing the 16,500 units of the part that are needed every year.
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Per Unit
|
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Direct materials
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$3.70
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Direct labor
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$4.40
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Variable overhead
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$7.40
|
|
Supervisor's salary
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$8.10
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Depreciation of special equipment
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$8.70
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|
Allocated general overhead
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$5.70
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An outside supplier has offered to make the part and sell it to the company for $30.00 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $22,500 of these allocated general overhead costs would be avoided.
Required:
a. Prepare a report that shows the effect on the company's total net operating income of buying part O43 from the supplier rather than continuing to make it inside the company.
b. Which alternative should the company choose?
Q4. Holtrop Corporation has received a request for a special order of 9,500 units of product Z74 for $46.40 each. The normal selling price of this product is $51.50 each, but the units would need to be modified slightly for the customer. The normal unit product cost of product Z74 is computed as follows:
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Direct materials
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$17.20
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Direct labor
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6.50
|
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Variable manufacturing overhead
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3.70
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Fixed manufacturing overhead
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6.60
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Unit product cost
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$34.00
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Direct labor is a variable cost. The special order would have no effect on the company's total fixed manufacturing overhead costs. The customer would like some modifications made to product Z74 that would increase the variable costs by $6.10 per unit and that would require a one-time investment of $45,900 in special molds that would have no salvage value. This special order would have no effect on the company's other sales. The company has ample spare capacity for producing the special order.
Required: Determine the effect on the company's the incremental net operating income of accepting the special order. (Omit the "$" sign in your response.)