Product D is produced for $24 per gallon. Product D can be sold without additional processing for $36 per gallon, or processed further into Product E

Product D is produced for $24 per gallon. Product D can be sold without additional processing for $36 per gallon, or processed further into Product E at an additional cost of $9 per gallon. Product E can be sold for $43 per gallon. Prepare a differential analysis dated February 26, 2014, on whether to sell Product D (Alternative 1) or process further into Product E (Alternative 2).

Answer:


Differential Analysis 
Sell Product D (Alt. 1) or Process Further into Product E (Alt. 2) 
February 26, 2014 

Sell 
Product D 
(Alternative 1) 
Process 
Further into 
Product E 
(Alternative 2) 
Revenues, per unit $36 $43 $7 
Costs, per unit –24 –33* –9 
Income (Loss), per unit $12 $10 –$2 
    
* $24 + $9 
The company should sell Product D without further processing. 

Dvorak Company produces a product that requires five standard pounds per unit. The standard price is $2.50 per pound

Dvorak Company produces a product that requires five standard pounds per unit. The standard price is $2.50 per pound. If 1,000 units required 4,500 pounds, which were purchased at $3.00 per pound, what is the direct materials (a) price variance, (b) quantity variance, and (c) cost variance?

Answer:

a. Direct materials price 

variance (unfavorable) 

$2,250 [($3.00 – $2.50) × 4,500 lbs.] 

b. Direct materials quantity –$1,250 [(4,500 lbs. – 5,000 lbs.) × $2.50] 

 variance (favorable)   

c. 

 

Direct materials cost 

variance (unfavorable) 

 

$1,000 

 

($2,250 – $1,250) or 

[($3.00 × 4,500 lbs.) – ($2.50 × 5,000 lbs.)] 

= $13,500 – $12,500 

Product R is normally sold for $52 per unit. A special price of $39 is offered for the export market. The variable production cost is $31 per unit

Product R is normally sold for $52 per unit. A special price of $39 is offered for the export market. The variable production cost is $31 per unit. An additional export tariff of 25% of revenue must be paid for all export products. Assume there is sufficient capacity for the special order. Prepare a differential analysis dated October 23, 2014, on whether to reject (Alternative 1) or accept (Alternative 2) the special order.

Answer:

Differential Analysis 

Reject Order (Alt. 1) or Accept Order (Alt. 2) 

October 23, 2014 

 

 

Reject Order 

(Alternative 1) 

Revenues, per unit $0.00 $39.00 $39.00 

Costs:    

Variable manufacturing costs, per unit 0.00 –31.00 –31.00 

Export tariff, per unit 0.00 –9.75* –9.75 

Income (Loss), per unit $0.00 –$  1.75 –$  1.75 

    

* $39.00 × 25% 

The company should not accept the special order. 

Crystal Lighting Inc. produces and sells lighting fixtures. An entry light has a total cost of $80 per unit, of which $54 is product cost

Crystal Lighting Inc. produces and sells lighting fixtures. An entry light has a total cost of $80 per unit, of which $54 is product cost and $26 is selling and administrative expenses. In addition, the total cost of $80 is made up of $40 variable cost and $40 fixed cost. The desired profit is $55 per unit. Determine the markup percentage on product cost.

Answer:

Markup percentage on product cost

Desired Profit + Selling and Admin. Exp. 

Total Product Cost 

Markup percentage on product cost: 

* $80 – $26 

Product A is normally sold for $9.60 per unit. A special price of $7.20 is offered for the export market. The variable production cost is $5.00 per unit

Product A is normally sold for $9.60 per unit. A special price of $7.20 is offered for the export market. The variable production cost is $5.00 per unit. An additional export tariff of 15% of revenue must be paid for all export products. Assume there is sufficient capacity for the special order. Prepare a differential analysis dated March 16, 2014, on whether to reject (Alternative 1) or accept (Alternative 2) the special order.

Answer:

Differential Analysis 

Reject Order (Alt. 1) or Accept Order (Alt. 2) 

March 16, 2014 

 

Reject 

Order 

(Alternative 1) 

Revenues, per unit $0.00 $7.20 $7.20 

Costs:    

Variable manufacturing costs, per unit 0.00 –5.00 –5.00 

Export tariff, per unit 0.00 –1.08* –1.08 

Income (Loss), per unit $0.00 $1.12 $1.12 

    

* $7.20 × 15% 

The company should accept the special order. 

Green Thumb Garden Tools Inc. produces and sells home and garden tools and equipment. A lawnmower has a total cost of $230 per unit

Green Thumb Garden Tools Inc. produces and sells home and garden tools and equipment. A lawnmower has a total cost of $230 per unit, of which $160 is product cost and $70 is selling and administrative expenses. In addition, the total cost of $230 is made up of $120 variable cost and $110 fixed cost. The desired profit is $58 per unit. Determine the markup percentage on product cost.

Answer:









Markup percentage on product cost
Desired Profit + Selling and Admin. Exp. 
Total Product Cost 
Markup percentage on product cost: 
* $230 – $70 

Product A has a unit contribution margin of $24. Product B has a unit contribution margin of $30

Product A has a unit contribution margin of $24. Product B has a unit contribution margin of $30. Product A requires four testing hours, while Product B requires six testing hours. Determine the most profitable product, assuming the testing is a constraint.

Answer:








Product A Product B 
Unit contribution margin……………………………………………… $24 $30 
÷ Testing hours per unit………………………………………………     4     6 
Unit contribution margin per production bottleneck hour……… $  6 $  5 
Product A is the most profitable in using bottleneck resources.