1.)Quail Co. can further process Product B to produce Product C. Product B is currently selling for $60 per pound and costs $42 per pound to produce. Product C would sell for $92 per pound and would require an additional cost of $13 per pound to produce. What is the differential revenue of producing and selling Product C?
|
|
|
|
|
|
|
d. $42 per pound
2.Lockrite Security Company manufacturers home alarms. Currently it is manufacturing one of its components at a total cost of $45 which includes fixed costs of $15 per unit. An outside provider of this component has offered to sell them the component for $40.
Provide a differential analysis of the outside purchase proposal.
| Differential cost to purchase: |
|
| SelectPurchase price of the componentVariable manufacturing costsItem 1 |
$ |
| Differential cost to manufacture: |
|
| SelectPurchase price of the componentVariable manufacturing costsItem 3 |
$ |
| Cost savings from continuing to make the component |
$
|
|
|
3.An oven with a book value of $67,000 has an estimated 5 year life. A proposal is offered to sell the oven for $8,500 and replace it with a new oven costing $110,000. The new machine has a five year life with no residual value. The new machine would reduce annual maintenance costs by $23,000.
Provide a differential analysis on the proposal to replace the machine.
| Annual maintenance cost reduction |
$ |
|
| Number of years applicable |
|
|
| Total differential decrease in cost |
$ |
|
| Proceeds from sale of equipment |
|
$ |
| Cost of new equipment |
|
|
| Net differential decrease in cost from replacing equipment |
|
$ |