ACCT 505 – 5questions - 1 (TCO D) Data for December concerning Dinnocenzo Corporation's two major business segments-Fibers and Feedstocks-appear below:

ACCT 505 – 5questions


1 (TCO D) Data for December concerning Dinnocenzo Corporation's two major business segments-Fibers and Feedstocks-appear below:
Sales revenues, Fibers                                      $870,000
Sales revenues, Feedstocks                              $820,000
Variable expenses, Fibers                                $426,000
Variable expenses, Feedstocks                        $344,000
Traceable fixed expenses, Fibers                     $148,000
Traceable fixed expenses, Feedstocks             S156,000


Common fixed expenses totaled $314,000 and were allocated as follows: $129,000 to the Fibers business segment and $185,000 to the Feedstocks business segment.


Required:
Prepare a segmented income statement in the contribution format for the company. Omit percentages; show only dollar amounts.


2. (TCO D) Eber Wares is a division of a major corporation. The following data are for the latest year of operations.
Sales                                                                            $30,000,000
Net Operating income                                                  $1,170,000
Average operating assets                                              $8,000,000
The company's minimum required rate of return                     18%


Required:
i. What is the division's margin?
ii. What is the division's turnover?
iii. What is the division's ROI?
iv. What is the division's residual income? (Points : 15)


3.(TCOD) The management of Thews Corporation is considering dropping product E28I. Data from the company's accounting system appear below.
Sales                                                                            $480,000
Variable Expenses                                                       $202,000
Fixed Manufacturing Expenses                                   $158,000
Fixed Selling and Administrative Expenses                $130,000

 

All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $86,000 of the fixed manufacturing expenses and $67,000 of the fixed selling and administrative expenses are avoidable if product E28I is discontinued.

 

Required:
i. What is the net operating income earned by product E28I according to the company's accounting system? Show your work!

ii. What would be the effect on the company's overall net operating income of dropping product E28I? Should the product be dropped? Show your work! (Points : 15)

 

4.(TCO D) Fouch Company makes 30,000 units per year of a part it uses in the products it manufactures. The unit product cost of this part is computed as follows.

Direct Materials                                              $15.70
Direct Labor                                                    $17.50
Variable Manufacturing Overhead                   $4.50
Fixed Manufacturing Overhead                      $14.60
Unit Product Cost                                            $52.30

An outside supplier has offered to sell the company all of these parts it needs for $51.90 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 $219,000 per year.

 

If the part were purchased from the outside supplier, all of the direct labor cost of the part would be avoided. However, $6.20 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:
i. How much of the unit product cost of $52.30 is relevant in the decision of whether to make or buy the part?
ii. What is the net total dollar advantage (disadvantage) of purchasing the part rather than making it?
iii. 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 30,000 units required each year? (Points : 15)

5. (TCO D) A customer has asked Clougherty Corporation to supply 4,000 units of product M97, with some modifications, for $40.10 each. The normal selling price of this product is $48.00 each. The normal unit product cost of product M97 is computed as follows.

Direct Materials                                             $18.50
Direct Labor                                                    $1.20
Variable manufacturing overhead                   $8.40
Fixed manufacturing overhead                        $3.90
Unit product cost                                           $32.00

 

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 M97 that would increase the variable costs by $5.70 per unit and that would require a one-time investment of $31,000 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 total net operating income of accepting the special order. Show your work! (Points : 15)

 

 

TUTORIAL PREVIEW

Prepare a segmented income statement in the contribution format for the company. Omit percentages; show only dollar amounts.

	Fibers	Feedstocks	Total
	$	$	$
Sales Revenue	870,000	820,000	1,690,000
Variable Expenses	426,000	344,000	770,000

 

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