Maize and Blue Co. is a multinational enterprise (MNE) that
manufactures many different products as parts for the aerospace
industry. The new controller, Mary, has been asked by the president
of the company to provide accounting data for decisions she needs
to make. Each question is worth 1 point.
Special Order: Suppose Wolverine Corp. approached
your company, Maize and Blue Co., with a special order. Wolverine
Corp. wishes to purchase 63,000 "warning" decals for its electrical
panels and offers to pay you $0.86 per decal. Your company has
enough capacity to handle the special order and its total
production cost is $0.56 per decal, as follows:
Variable costs: | |
Direct materials | $0.13 |
Direct labor | $0.10 |
Variable overhead | $0.13 |
Fixed overhead | $0.20 |
Total cost | $0.56 |
1. What are the total relevant costs if Maize and Blue accepts the special order?
2. What is the increase or decrease in net operating income from the order if Maize and Blue accepts the special order? Enter an increase as a positive number and a decrease as a negative number.
3. Discontinuing a Product Line: Maize and Blue is considering discontinuing one of its product lines. During the past year, the product line's income statement showed the following:
Sales revenue | $7,389,000 |
Less: cost of goods sold | $6,500,000 |
Gross profit | $889,000 |
Less: operating expenses | $1,600,000 |
Operating income (loss) | $-711,000 |
Fixed manufacturing overhead costs account for 10% of the cost of goods, while only 30% of the operating expenses are fixed. Since the product line is just one of Maize and Blue's products, only $740,000 of total fixed expenses (the majority of which is advertising) will be eliminated if the product line is discontinued. If the company decides to discontinue the product line, how much will the company's net operating income increase or decrease? Enter an increase as a positive number and a decrease as a negative number.
Answer questions 4 and 5 with the following
information:
Maize and Blue packages small LED lights for plane instrument
panels. Cost data for this packaging process are as
follows:
Unit Cost | ||
Packaging materials (e.g., boxes, bubble-wrap) | $2.18 | |
Packaging direct labor | $0.67 | |
Indirect materials (e.g., tape, labels) | $0.42 | |
Packaging supervision (variable) | $0.40 | |
Other fixed manufacturing overhead | $1.46 | |
Total packaging cost | $5.13 |
An outside supplier has offered to do all the packaging for a price
of $4 per unit for all packaging-related activities if Maize and
Blue signs a one-year contract for a minimum of 143,400 units
produced each year. Maize and Blue could use the factory space now
occupied by the packaging process to expand production to another
product line. This expansion is expected to generate an additional
$155,000 in profit per year.
4. Make or Buy: What are the total relevant costs
of continuing to package the products internally; that is, which of
the annual costs is avoidable if Maize and Blue outsources the
packaging process?
5. Make or Buy: What is the relevant cost of outsourcing the packaging process considering the profit from expanding production of another product?
1. Total relevant costs are the costs which are incurred for the special order.
Since the company has spare capacity, fixed costs will not be incurred for this order and are not relevant
Total relevant cost = (0.13+0.10+0.13)*63,000 = $22,680
2.Increase in operating income = (0.86-0.36)*63,000
=$31,500
3. Increase in operating Income =savings in fixed costs - contribution margin lost
= 740,000 -(7,389,000-6,500,000*90% - 1,600,000*70%)
= $321,000
4. Fixed costs will continue to occur irrespective of the decision
Hence, total avoidable cost will be the variable costs
= (2.18+0.67+0.42+0.40)*143,400
=$526,278
5.Relevant cost = 4*143,400 - 155,000
=$418,600
Hence, buying is better
Maize and Blue Co. is a multinational enterprise (MNE) that manufactures many different products as parts...
Maize Company incurs a cost of $34.74 per
unit, of which $19.38 is variable, to make a product that normally
sells for $58.78. A foreign wholesaler offers to buy 5,800 units at
$31.10 each. Maize will incur additional costs of $3.09 per unit to
imprint a logo and to pay for shipping. Compute the increase or
decrease in net income Maize will realize by accepting the special
order, assuming Maize has sufficient excess operating capacity.
Question 5 Maize Company incurs...
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Please open and enlarge Blue box data includedDecision 1 options accept the
special sale order or reject the special sale
order
Decison 2 options accept the special sale order
or reject the special sale order
please open it's an attachment
Suppose the Hockey Hall of Fame in Toronto has approached Star-Cardz with a special order. The Hall of Fame wants to purchase 58,000 hockey card packs for a special promotional campaign and offers $0.36 per pack, a total of $20,880....
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please answer the following.
4 Analyze special order decision (Learning Objective 3) O Products manufactures t-shirts. It has the following costs when its production level is 100,000 units (t-shirts): Total costs for 100,000 units Direct materials ................. $ 320,000 Direct labor ............ 40,000 Variable manufacturing overhead ...... 85,000 Fixed manufacturing overhead 120,000 Total manufacturing costs ......... $ 565,000 The company's relevant range extends to 115,000 units. Orr has received a special order for 10,000 t-shirts at a special price of...
Special-Order Decision, Alternatives, Relevant Costs Sequoia Paper Products, Inc., manufactures boxed stationery for sale to specialty shops. Currently, the company is operating at 90 percent of capacity. A chain of drugstores has offered to buy 34,000 boxes of Sequoia’s blue-bordered thank-you notes as long as the box can be customized with the drugstore chain’s logo. While the normal selling price is $6.10 per box, the chain has offered just $3.40 per box. Sequoia can accommodate the special order without affecting...
Special-Order Decision, Alternatives, Relevant Costs Sequoia Paper Products, Inc., manufactures boxed stationery for sale to specialty shops. Currently, the company is operating at 85 percent of capacity. A chain of drugstores has offered to buy 32,000 boxes of Sequoia’s blue-bordered thank-you notes as long as the box can be customized with the drugstore chain’s logo. While the normal selling price is $5.90 per box, the chain has offered just $2.80 per box. Sequoia can accommodate the special order without affecting...
Benace Parts and Supply makes a variety of car parts. The company produces 6,000 A90 parts each year. Each A90 sells for $12 and has a contribution margin of $6. Currently, $16,100 of fixed manufacturing overhead is allocated to the A90 product line. If Benace Parts and Supply discontinues the A90 product line, $7,100 of fixed manufacturing overhead costs would be avoided. What would be the impact on total operating income if the A90 product line were to be discontinued?...