Question;Exercise Week 5 questionsExercise 9-6SY Tele has recently started the manufacture of ReeRobo, a three-wheeled robot that can scan ahome for fires and gas leaks and then transmit this information to a mobile phone. The coststructure to manufacture 20,000 RecRobos is as followsCostDirect Materials ($40 per robot)$800,000Direct labor ($30 per robot)$600,000Variable overhead ($6 per robot)$120,000Allocated fixed overhead ($25 per robot)$500,000Total2,020,000SY Tele is approached by Chen Inc. which offers to make ReeRobo for $90 per unit or$1,800,000.Instructionsa) Using incremental analysis, determine whether SY Tele should accept this offer undereach of the following independent assumptions,1) Assume that $300,000 of the fixed overhead cost can be reduced (avoided).2) Assume that none of the fixed overhead can be reduced (avoided). However, if therobots are purchased from Chen Inc. SY Tele can use the released productiveresources to generate additional income of $300,000.b) Describe the qualitative factors that might affect the decision to purchase the robots froman outside supplier.E9-11Twyla Enterprises uses a computer to handle its sales invoices. Lately, business has been so goodthat it takes an extra 3 hours per night, plus ever third Saturday, to keep up with the volume ofsales invoices. Management is considering updating its computer with a faster model that wouldeliminate all of the overtime processing.Current MachineNew Machine$15,000$25,000Original purchase costAccumulated depreciation$6,000Estimated annual operating$24,000$18,000costsUseful life5 years5 yearsIf sold now, the current machine would have a salvage value of $5,000. If operated for theremained of its useful life, the current machine would have zero salvage value. The new machineis expected to have zero salvage value after five years.Instructions: Should the current machine be replaced?Problem 9-1 APro Sports Inc. manufactures basketballs for the National Basketball Association. For the first6months of 2008, the company reported the following operating results while operating 90% ofplant capacity and producing 112,500 units.AmountSales$4,500,000Cost of goods soldSelling and administrative expensesNet Income$3,600,000$450,000$450,000Fixed costs for the period: cost of goods sold $1,080,000, and selling and administrativeexpenses $225,000.In July, normally a slack manufacturing month, Pro Sports receives a special order for10,000 basketballs at $28 each for the Italian Basketball Association. Acceptance of the orderwould increase variable selling and administrative expenses $0.50 per unit because of shippingcosts but would not increase fixed costs and expenses.InstructionsA)Prepare an incremental analysis for the special order.B) Should Pro Sports Inc. accept the special order? Explain your answer.C) What is the minimum selling price on the special order to produce net income of $4.10 perball?D) What nonfinancial factors should management consider in making its decisions?Problem 9-5A Lewis Manufacturing Company has four operating divisions. During the firstquarter of 2008, the company reported aggregate income from operations of $176,000 and thefollowing divisional results.DivisionsIIIIIIVSales$250,000$200,000$500,000$400,000Costs of goods sold$200,000$189,000$300,000$250,000Selling and administrative expenses $65,000$60,000$60,000$50,000Income (loss) from Operations$(15,000)$(49,000)$140,000$100,000Analysis reveals the following percentages of variable costs in each division.IIIIIIIVCosts of goods sold70%90%80%75%Selling and administrative expenses40705060Discontinue of any division would save 50% of the fixed costs and expenses for that division.Top management is very concerned about the unprofitable divisions (I and II), Consensus is thatone or both of the divisions should be discontinued.InstructionsA) Computer the contribution margin for Divisions I and II.B) Prepare an incremental analysis concerning the possible discontinuance of (1) Division Iand (2) Division II. What course of action do you recommend for each division?C) Prepare a columnar condensed income statement for Lewis Manufacturing, assumingDivision II is eliminated. Use the CVP format. Division IIs unavoidable fixed costs areallocated equally to the continuing divisions.D) Reconcile the total income from operations ($176,000) with the total income fromoperations without Division II.
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