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Please complete the following exercises and/or problems from the textbook: E25-10 E25-13 E25-18 E25-15 CP25-34 Prepare your answers in an Excel workbook, using one worksheet per exercise or problem.




Please complete the following exercises and/or problems from the textbook:












Prepare your answers in an Excel workbook, using one worksheet per exercise or problem.


E25-10 Making special pricing decisions


Suppose the Baseball Hall of Fame in Cooperstown, New York, has approached


Hobby-Cardz with a special order. The Hall of Fame wishes to purchase 57,000


baseball card packs for a special promotional campaign and offers $0.41 per pack, a


total of $23,370. Hobby-Cardz’s total production cost is $0.61 per pack, as follows:


Variable costs:


Direct materials $ 0.13


Direct labor 0.06


Variable overhead 0.12


Fixed overhead 0.30


Total cost $ 0.61


Hobby-Cardz has enough excess capacity to handle the special order.





chapter 25


C H A P T E R 2 5


E25-12 Making pricing decisions


Stenback Builders builds 1,500-square-foot starter tract homes in the fast-growing


suburbs of Atlanta. Land and labor are cheap, and competition among developers is


fierce. The homes are a standard model, with any upgrades added by the buyer after


the sale. Stenback Builders’ costs per developed sublot are as follows:


Land $ 59,000


Construction 124,000


Landscaping 6,000


Variable selling costs 5,000


Stenback Builders would like to earn a profit of 14% of the variable cost of each


home sale. Similar homes offered by competing builders sell for $208,000 each.


Assume the company has no fixed costs.




1. Which approach to pricing should Stenback Builders emphasize? Why?


2. Will Stenback Builders be able to achieve its target profit levels?


3. Bathrooms and kitchens are typically the most important selling features of a


home. Stenback Builders could differentiate the homes by upgrading the bathrooms


and kitchens. The upgrades would cost $22,000 per home but would


enable Stenback Builders to increase the selling prices by $38,500 per home.


(Kitchen and bathroom upgrades typically add about 175% of their cost to the


value of any home.) If Stenback Builders makes the upgrades, what will the new


cost-plus price per home be? Should the company differentiate its product in


this manner?


E25-13 Making dropping a product decisions


Top managers of Movie Street are alarmed by their operating losses. They are


considering dropping the DVD product line. Company accountants have


prepared the following analysis to help make this decision:


Learning Objective 2


2. Desired profit $27,160


Learning Objective 3


1. $(31,000)


Selling and Administrative


Total Fixed Expenses


Operating Income (Loss)








Total Discs


$ (41,000)








Income Statement


For the Year Ended December 31, 2014


$ 32,000






$ (9,000)


128,000 71,000 57,000






Contribution Margin


Sales Revenue


Variable Costs




Fixed Costs:














$ 432,000 $ 305,000 $ 127,000


Total fixed costs will not change if the company stops selling DVDs.




1. Prepare a differential analysis to show whether Movie Street should drop the


DVD product line.



2. Will dropping DVDs add $41,000 to operating income? Explain



E25-18 Making outsourcing decisions


Fiber Systems manufactures an optical switch that it uses in its final product. The


switch has the following manufacturing costs per unit:


Direct Material $ 9.00


Direct Labor 1.50


Variable Overhead 5.00


Fixed Overhead 9.00


Manufacturing Product Cost $ 24.50


Another company has offered to sell Fiber Systems the switch for $18.50 per unit.


If Fiber Systems buys the switch from the outside supplier, the manufacturing


facilities that will be idled cannot be used for any other purpose, yet none of the


fixed costs are avoidable.


Prepare an outsourcing analysis to determine whether Fiber Systems should


make or buy the switch.




E25-15 Making product mix decisions


Lifemaster produces two types of exercise treadmills: regular and deluxe. The


exercise craze is such that Lifemaster could use all its available machine hours to


produce either model. The two models are processed through the same production


departments. Data for both models is as follows:


Per Unit


Deluxe Regular


Sale Price $ 1,020 $ 560




Direct Material 300 90


Direct Labor 88 188


Variable Manufacturing Overhead 264 88


Fixed Manufacturing Overhead* 138 46


Variable Operating Expenses 111 65


Total Costs 901 477


Operating Income $ 119 $ 83


*allocated on the basis of machine hours




1. What is the constraint?


2. Which model should Lifemaster produce? (Hint: Use the allocation of fixed


manufacturing overhead to determine the proportion of machine hours used by


each product.)


3. If Lifemaster should produce both models, compute the mix that will maximize


operating income.



P25-34 Making sell or process further decisions


This problem continues the Davis Consulting, Inc. situation from Problem P24-37


of Chapter 24. Davis Consulting provides consulting services at an average price


of $175 per hour and incurs variable costs of $100 per hour. Assume average fixed


costs are $5,250 a month.


Davis has developed new software that will revolutionize billing for companies.


Davis has already invested $200,000 in the software. It can market the software as


is at $30,000 per client and expects to sell to eight clients. Davis can develop the


software further, adding integration to Microsoft products at an additional development


cost of $120,000. The additional development will allow Davis to sell the


software for $38,000 each, but to 20 clients.



Should Davis sell the software as is or develop it further?



Needs to be done in Excel


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