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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.

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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.

 

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.

 

 

1616

 

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.

 

Requirements

 

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)

 

Blu-ray

 

Discs

 

DVD

 

Total Discs

 

$ (41,000)

 

72,000

 

15,000

 

MOVIE STREET

 

Income Statement

 

For the Year Ended December 31, 2014

 

$ 32,000

 

123,000

 

52,000

 

$ (9,000)

 

128,000 71,000 57,000

 

195,000

 

67,000

 

Contribution Margin

 

Sales Revenue

 

Variable Costs

 

Manufacturing

 

Fixed Costs:

 

31,000

 

96,000

 

155,000

 

150,000

 

186,000

 

246,000

 

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

 

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

 

Requirements

 

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

 

Costs:

 

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

 

Requirements

 

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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