Question 1: The Aluminum Can Company has 200,000 obsolete cans in inventory at a cost of $10,000. The cans can be cut in half to make candle holders for $2,000. The candle holders can be sold for $3,500 in total. If the cans are scrapped, they could be sold for $900.
Which alternative should the Aluminum Can Company accept and what is the relevant profit from the alternative?
Question 2: Cari manufactures a unit called Y2. Variable manufacturing costs per unit of Y2 are as follows:
Direct materials $2
Direct labor $20
Variable manufacturing overhead $10
The Nick Company has offered to sell Cari 10,000 units of Y2 for $44 per unit. If Cari accepts the offer, $140,000 of fixed manufacturing overhead will be eliminated.
Applying differential analysis to the situation, what should Cari do?
Question 3. Northern Production Company has 200 labor-hours available. There is no limit on machine-hours. Northern can sell all of Y it wants, but it can only sell 45 units and 20 units of X and Z, respectively.
Product X Y Z
Contribution margin per unit $30 $20 $24
Labor-hours per unit 4 5 4
Machine-hours per unit 10 8 2
What is the contribution margin per labor-hour for product Y?
Question 4. The Kirsten Company uses a joint process to produce products A, B, C, and D. Each product may be sold at its split-off point or processed further. Joint processing costs for a single batch of joint products are $65,000. Other relevant data are found below:
|
|
Sales Value
|
Additional Costs
|
Sales Value
|
|
Product
|
At Split-Off
|
of Processing
|
of Final Product
|
|
A
|
$15,000
|
$18,000
|
$ 45,000
|
|
B
|
27,000
|
15,000
|
40,000
|
|
C
|
20,000
|
25,000
|
30,000
|
|
D
|
13.000
|
11,000
|
25.000
|
|
|
$75.000
|
63 000
|
$140.001
|
Calculate the effect on profits of processing Product A further beyond the split-off point.
Question 5. A limitation of 3,000 machine-hours per week prevents Manhattan Manufacturing Company from meeting the sales demands for its products. The product information is found below:
|
|
R1
|
R2
|
R3
|
R4
|
|
Unit selling price
|
$900
|
$600
|
$350
|
$600
|
|
Unit variable costs
|
- 600
|
- 250
|
- 200
|
- 300
|
|
Unit contribution margin
|
$300
|
$350
|
$150
|
$300
|
|
Machine-hours per unit
|
20
|
20
|
20
|
30
|
Assuming unlimited demand for each product, determine what is the best short-run profit maximizing strategy?