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ACC 102 Chapter 7
Exercise 7-2
Reject Accept
Order Order Net Income
Revenues $0 $23,750 $23,750
Materials $0 -$2,500 -$2,500
Labor $0 -$7,500 -$7,500
Variable Overhead$0 -$5,000 -$5,000
Fixed Overhead $0 -$5,000 -$5,000
Sales Commissions$0 $0 $0
Net Income $0 $3,750 $3,750
Gruner should accept the special order because incremental revenue exceeds expenses by $3,750.
The assumption that sales of the golf discs in other retailers would not be affected.
Exercise 7-5
Make Buy Net Income -+
Dir. Materials$150,000 $0 $150,000
Dir. Labor $180,000 $0 $180,000
Var. costs $126,000 $0 $126,000
Fixed costs $45,000 $45,000 $0
Purchase Price 0 465,000 -465,000
Annual Cost $501,000 $510,000 ($9,000)
b) Swayze Inc. should not purchase the lamp shades because it would cost $9,000 more.
c) Yes, because it would be saving the company $26,000
Make Buy Net Income
Annual Cost $501,000 $510,000 ($9,000)
Opportunity cost $35,000 $35,000 $0
Total Cost $536,000 $510,000 ($26,000)
Exercise 7-8
Make IMC2 Buy IMC2 Net Income
Dir. Mat. $65.00
Dir . Labor $48.00
Mat. Handling 6.5 $0 6.5
Var. Overhead 60 0 60
Purchase Price 0 $200 -200
Total Price $179.50 $200 ($20.50)
b) Interdesign would need to know the opportunity costs for manufacturing the other product. Purchasing the product from another market would cost the company $20,500 more, causing Interdesign to have to increase their contribution margin.
c) Qualitative factors that would have to be considered are: quality of component, on time delivery, and reliability of the vendor.
Exercise 7-10
a) Sales (50,000+10,000+60,000)= $120,000
Joint costs $100,000
Net Income $20,000
b) Sales (190,000+35,000+220,000)=$445,000
Joint costs -100,000
Additional costs(100,000+30,000+150,000)=-280,000
Net Income $65,000
C) Product 12 Product 14 Product 16
Inc....