Answer:
HANNON COMPANY
Assembly Department
Manufacturing Overhead Cost Responsibility Report
For the Month Ended April 30,2017
Controllable Cost Budget$ Actual$ Difference$ Remark
Indirect materials 14,200 13,700 500 Favourable
Indirect Labor 19,100 19,900 -800 Unfavourable
Utilities 11,400 12,100 -700 Unfavourable
Supervision 4,600 4,600 0 None
Total 49,300 50,300 -1,000 Unfavourable
The GoT cups are a fast seller and you need to ensure that you have enough rolls of paper to fulfill demand. The first stage in the process is to determine the total cost of the current inventory ordering model. Given the following information, how many rolls should they order to minimize costs?H: $1.75 per unitD: 500 rolls per monthQ: 100 units ordered at a timeS: $25 per order
Answer:
EOQ = 414 rolls
Explanation:
In order to calculate the number of orders to minimize the cost, we should calculate that by using the Economic order quantity model.
DATA
Holding cost = $1.75/unit
Annual demand = 500 rolls x 12 = 6000 rolls
Ordering cost = $25
Formula
EOQ =[tex]\sqrt{\frac{2Cod}{Ch} }[/tex]
Where
Co = ordering cost
D = Annual demand
Ch = Holding cost
Solution
EOQ = [tex]\sqrt{\frac{2(6000)(25)}{1.75} }[/tex]
EOQ = [tex]\sqrt{\frac{300000}{1.75} }[/tex]
EOQ = 414 rolls
They should order 414 rolls to minimize the cost.
Answer:
119 units
Explanation:
The economic order quantity is the minimum amount of inventory that a seller must keep to demand and lower the holding cost. The ordering cost is $25 per order. Holding cost is $1.75 per unit. The total demand is 500 units per month. The economic order quantity that will minimize the cost of the GoT cups is
EOQ = [tex]\sqrt{\frac{2*Demand*ordering cost}{Holding cost} }[/tex]
EOQ is 119 units.
Cobe Company has already manufactured 17,000 units of Product A at a cost of $20 per unit. The 17,000 units can be sold at this stage for $410,000. Alternatively, the units can be further processed at a $240,000 total additional cost and be converted into 5, 800 units of Product B and 11, 400 units of Product C. Per unit selling price for Product B is $107 and for Product C is $52.
Prepare an analysis that shows whether the 17,000 units of Product A should be processed further or not.
Sell as is ProcessFurther
Sales
Relevant costs:
Total relevant costs
Income (loss)
Incremental net income (or loss) if processed further
The company should
Answer:
differential analysis:
No further process Process further Differential
amount
Sales revenue $410,000 $1,213,400 $803,400
Production costs ($340,000) ($580,000) ($240,000)
Operating income $70,000 $633,400 $563,400
The company should process further and sell products B and C because its operating income will increase by $563,400.
whatis the general termfor resources used by a business to produce good or services referred to as
Answer:
Factors of Production
The IMF policies that accompany most IMF loans are typically: Multiple Choice expansionary in the short run. procyclical in the long run. contractionary in the long run. contractionary in the short run.
Answer:
contractionary in the long run
Explanation:
contractionary fiscal policy reduces spending and raises taxes. it contract the economy by reducing the amount of money that is available for businesses and for people to spend. it could reduce government expenditure or increase taxes or in other times do both. useful during inflation
A mother, aged 60, wishes to withdraw monies from her variable annuity to pay for her son's college education. Which statement is true regarding the taxation of the withdrawal?
A. The withdrawal is 100% taxable
B. Any amount withdrawn above the cost basis is taxable
C. Any amount withdrawn above the cost basis is taxable, and is subject to a 10% penalty tax
D. The withdrawal is not subject to tax
Answer:
Any amount withdrawn above the cost basis is taxable
Explanation:
This woman is above 59½ years at age 60. If she was least than 60, she would be owing a 10% penalty on the taxable amount of this withdrawal. But since she is above this age she has to pay income taxes on the whole taxable amount of the funds she withdrew. Variable annuities would never be taxed the money is withdrawn. Therefore option B is the best answer for This question.
The firm receives an average of $20,000 in checks per day. The weighted average delay in clearing the checks received is 3 days. Meanwhile, the firm writes an average of $17,000 in checks to pay its suppliers per day. The usual clearing time for the checks the firm wrote is 2 days. The current interest rate is 0.015 percent per day. What is the most the firm should be willing to pay today (in a lump sum today) to eliminate its float entirely? A) 3000 B) 26000 C) 34000 D) 37000 E) 60000
Answer:
$26000
Explanation:
from the question;
check per day; 20000
delay: 3 days
checks to pay suppliers; 17000
clearing time 2 days
we first calculate collection flaot:
collection flaot = average amount of check x outstanding days
= 20000 x 3
= 60000
now we have to calculate disbursements float:
average amount of check x days to clear
= 17000 x 2
= 34000
with these two values we can get the net float
= collection flaot - disbursements float
= 60000 - 34000
= $26000
The failure to record a purchase of mer chandise on account even though the goods are properly included in the physical inven tory results in
Answer: D. an understatement of expenses and an overstatement of owners' equity
Explanation:
If a purchase of merchandise was not recorded, it would mean that Purchases being an expense that contributes to the Cost of Goods sold would be understated.
This understatement would mean that the the Net income is overstated because the purchase expenses were never deducted from it. Net Income is part of owners' equity so if it is overstated, so is owners' equity .
You haven't been able to spend much time talking with your team lately, but your workload should be back to normal soon. When you checked in with your team today, several associates joked about being surprised to see you.
Assuming all option are possible, what would you be most and least likely to do?
Answer and Explanation:
I would most likely do this:
Explain the issue to the team and praise them for their work in my absence. I would let them know there would be more time soon. It is very essential to praise and appreciate these efforts by the associates since I have been absent for a while and do not know what efforts they have been putting in.
I would be least likely to:
Talk to the manager to explain this situation or propose that my some of my commitments are eased for me to have more time with my team
The percent change in nominal gross domestic product (GDP) minus the percent change in price level equals
Answer:
Real GDP
Explanation:
Nominal GDP less percent change in price levels equals to real GDP
Nominal GDP is GDP calculated using current year prices
Real GDP is GDP using base year prices. it has been adjusted for inflation.
Gross domestic product is the total sum of final goods and services produced in an economy within a given period which is usually a year
The required investment cost of a new, large shopping center is $49 million. The salvage value of the project is estimated to be $20 million (the value of the land). The project's life is 15 years and the annual operating expenses are estimated to be $14 million. The MARR for such projects is 15% per year. What must the minimum annual revenue be to make the shopping center a worthwhile venture?
Answer:
The minimum annual revenue is 22.38 million.
Explanation:
Let the minimum annual revenue = X
Therefore,
The present value of cash inflows = Present value of cash outflows
X (P/A,15%,15) + 20 (P/F,15%,15)= 49*1 + 14(P/A,15%,15)
Now look into the annuity table or compound interest factor table and use that values to solve the equation.
X(5.847) + 20 (0.1229) = 49 + 14 (5.847)
X(5.847) = 130.858
X = 130.858 / 5.847
X = 22.38 millions
The minimum annual revenue = 22.38 million.
Instead of a dividend of $1.60 per share, the company has announced a share repurchase of $16,000 worth of stock. How many shares will be outstanding after the repurchase?
Answer:
9,690 stocks
Explanation:
some information is missing:
Market Value Balance Sheet
Cash $45,300 Equity $515,300
Fixed assets $470,000
Total $515,300 Total $515,300
total number of shares outstanding = 10,000
stock's market price = $515,300 / 10,000 = $51.53
stocks repurchased = $16,000 / $51.53 = 310.50, but we must round down to 310 stocks
stocks outstanding after repurchase = 10,000 - 310 = 9,690
Jack, an employee of Desert Sky, Inc., has gross salary for May of . The entire amount is under the OASDI limit of $118,500 and thus subject to FICA. He is also subject to federal income tax at a rate of %. Which of the following is a part of the journal entry for accrual of the employer payroll taxes? (Assume a FICAOASDI Tax of % and FICAMedicare Tax of %.) Jack's income to date exceeds the FUTA and SUTA tax income limits
Answer:
Credit to Cash for $4,995 is correct
Explanation:
here is a complete question
has a gross salary for May of $7,000. The entire amount is under the OASDI limit of $118,500 and thus subject to FICA. He is also subject to federal income tax at a rate of 21%. Which of the following is a part of the journal entry to record the disbursement of his net pay? (Assume a FICA-OASDI Tax of 6.2 % and FICA-Medicare Tax of 1.45%. Round the final answer to the nearest dollar.) A. debit to Cash for $4,995 B. debit to FICA Tax Payable of $4,995 O C. debit to Employee Income Tax Payable of $4,995 D. credit to Cash for $4,995
The computation of the amount that becomes the part for accrual the employer payroll taxes is shown below:
Gross Pay $7,000
Less: Deductions
Federal Income tax $1,470 ($7000 × 21%)
FICA-OASDI tax $434 ($7000 × 6.2%)
FICA-Medicare tax $102 ($7,000 × 1.45%)
Total Deductions 2006
Net pay $4,995
As a result of a decrease in the demand for U.S. dollars, there has been depreciation in the value of the U.S. dollar relative to Jamaican dollars. The depreciation in the U.S. dollar has benefitted some groups but harmed others. Indicate which of the groups are winners and which are losers from the standpoint of the depreciation of the U.S. dollar.
A. Todd, an American, going to visit Jamaica for spring break.
B. An investment bank in Jamaica that is interested in purchasing U.S. government bonds.
C. Goodyear, a U.S. based firm, selling car tires in Jamaica.
D. A family from Jamaica visiting relatives in the U.S. E. A firm from Jamaica selling handbags in the U.S.
F. U.S. based Hewlett-Packard, which is purchasing a high tech company in Jamaica.
Answer;
A. Todd, an American, going to visit Jamaica for spring break. - Loser
The US dollar depreciating means that it now takes more US dollars to buy Jamaican dollars. Todd will afford less Jamaican dollars when he goes to Jamaica.
B. An investment bank in Jamaica that is interested in purchasing U.S. government bonds. - Winner
The Investment bank will see that their domestic currency is stronger than it was therefore they can buy more US dollars. As a result it will be cheaper for the Investment bank to buy U.S. Government bonds.
C. Goodyear, a U.S. based firm, selling car tires in Jamaica. - Winners.
Goodyear will be winners because when they sell their tires in Jamaican dollars and then convert it to USD, they will.get more dollars from the transaction than before.
D. A family from Jamaica visiting relatives in the U.S. - Winners
As the Jamaican family will be able to buy more US dollars than before, they are winners.
E. A firm from Jamaica selling handbags in the U.S. - Losers.
As the firm sells in the US, they sell in US dollars. When they try to convert their sales to Jamaican dollars, they will get less than before.
F. U.S. based Hewlett-Packard, which is purchasing a high tech company in Jamaica. - Losers.
The depreciation of the US dollar means than HP will have to spend more dollars purchasing the company than before because the purchase price of the company will be stated in Jamaican dollars.
A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 5.5%. The probability distributions of the risky funds are: Expected Return Standard Deviation Stock fund (S) 15 % 32 % Bond fund (B) 9 % 23 % The correlation between the fund returns is 0.15. What is the Sharpe ratio of the best feasible CAL?
Answer:
0.296875
Explanation:
Given the following :
Probability distribution of risky funds :
- - - - - - - - - - - - - - stock fund(S) - - bond fund(B)
Expected return - - - 15% - - - - - - - - - - 9%
Std - - - - - - - - - - - - - 32% - - - - - - - - - - 23%
Correlation between funds return = 0.15
Sure rate = 5.5%
To calculate the Sharpe ratio we use the formula :
Sharpe Ratio = (Expected Return of Investment - Risk Free Rate) / Standard Deviation of excess return of investment
For the stock fund :
Expected return = 15%
Risk free rate = market sure rate = 5.5%
Standard deviation = 32%
Sharpe ratio of stock fund :
(15% - 5.5%) / 32%
= 9.5% / 32%
= 0.296875
For Bond fund :
Expected return = 9%
Risk free rate = market sure rate = 5.5%
Standard deviation = 23%
Sharpe ratio of bond fund :
(9% - 5.5%) / 23%
= 3.5% / 23%
= 0.1521739
Therefore the Sharpe ratio of the best feasible CAL is the higher of the two ratios which is 0.296875
Blue Cab Company had 69,000 shares of common stock outstanding on January 1, 2021. On April 1, 2021, the company issued 39,000 shares of common stock. The company had outstanding fully vested incentive stock options for 14,500 shares exercisable at $11 that had not been exercised by its executives. The end-of-year market price of common stock was $32 while the average price for the year was $31. The company reported net income in the amount of $364,915 for 2021. What is the diluted earnings per share (rounded)
Answer:
$3.38
Explanation:
The diluted earnings per share is calculated as;
First, we need to calculate the weighted average outstanding shares.
Weighted average outstanding share is
= Common shares + (Issued shares × 9/12[April - December] + [(Issued shares - Shares exercisable)
= 69,000 shares + (39,000 shares × 9/12) + ( 14,750* - 5,145*)
= 69,000 + 29,250 + 9,605
= 107,855
Therefore, the diluted earnings per share is;
= Net income / Weighted average outstanding shares
= $364,915 / 107,855
= $3.38
Note : (14,500 shares × 11) / 31
= 5,145
Welcome Inc. is a global Internet company that offers country-specific variations of its sites, keeping in mind the linguistic and religious differences between the countries. Welcome Inc. is most likely doing this to:
Answer:
reduce its cultural distance from the other countries
Explanation:
In this scenario, Welcome Inc. is most likely doing this to reduce its cultural distance from the other countries. Cultural distance refers to the differences in cultural values amongst countries, organizations, and stakeholders. In this case, Welcome Inc is trying to reduce this by making sure that they adjust their products and services to best accommodate these specific cultural differences in each country. In doing so they gain more loyal customers and increase their profits in each country which they do business in.
_____ is a method for determining the estimated annual costs and benefits for a project and the resulting annual cash flow.
Answer:
Cash flow analysis, is the right answer.
Explanation:
“Cash flow analysis” is the method that determined the actual cash that goes out of the business and the actual cash that comes in the business. Basically this method is used for financial purposes. This method exhibits the actual cost that the business has incurred and the actual benefit it has earned. Moreover, new investors that invest in the company primarily sees the financial report of the company and then take the decision to invest.
In a production bottleneck situation, the product with the highest contribution margin per unit should be given priority over a product that has the highest contribution margin per bottleneck hour.
a. True
b. False
Answer:
b. false
Explanation:
A bottleneck is a point at which there is the stoppage in the system of production. The inefficiencies that are generated through the bottleneck developed the delays and leads to the high cost of production
Here in the given situation, since there is the highest contribution margin per unit that gives more priority as compared with the contribution margin per bottleneck hour i.e. totally wrong as it should give the priority to the contribution margin per bottleneck hour
Therefore the given statement is false
A coworker of Connor's recommends that she maximize the shelf space devoted to those drinks with the highest contribution margin per case. Do you agree with this recommendation? Explain briefly.
Answer:
Yes
Explanation:
Ultimately I agree with the recommendation that has been given by Connor's coworker. By maximizing the shelf space specifically devoted to these drinks it will cause two things to happen. First, customers will mostly notice those drinks which will entice them to buy those drinks instead of the ones they cannot see. The second is that since customers are buying more of these drinks, the increase in sales will also increase profits, but since these items contribution margins are significantly higher than the others, it will cause profits to drastically increase.
Abby had a checkbook balance of $1,002.45. She paid $76.98 to the electric company and $254.34 to the water company. What is Abby’s current checkbook balance?
Answer:
$671.13
Explanation:
Abby had a checkbook balance of $1,002.45
$76.98 was paid to the electric company
$254.34 was paid to the water company
Therefore the current checkbook balance can be calculated as follows
=$1,002.45-($76.98+$254.34)
= $1,002.45-$331.32
= $671.13
Hence Abby's current checkbook balance is $671.13
The company currently markets McDog T-bone, Lapdog Lunchtreats, Rover's Potroast, and Puppy Porterhouse in the dog food market. Prime Cuts will be an addition to the
Answer:
company's product line in the dog food market
Explanation:
In the description provided, it can be said that Prime Cuts will be an addition to the company's product line in the dog food market. A product line is a group of related products all marketed under a single brand name and are sold by the same company to the same targeted group of consumers. Such as in this scenario, all of the products listed are dog treats/food with different ingredients and are all sold by the same company to people looking for dog food.
Rahman stock just paid a dividend of $3.00 per share. Future dividends are expected to grow at a constant rate of 6% per year. What is the value of the stock if the required return is 12%
Answer:value of stock for the required return of 12 % = $53
Explanation:
Given
current dividend just paid = $3.00
dividend to grow at constant rate of 6%
required rate of return =12%
to calculate the value of stock for the requitred return of 12 % , we use the dividend growth model which is
Current price = dividend ( 1 + growth rate )/ (required rate -growth rate )
= 3 x (1+6%) / 12-6 = 3 x 1.06 /6% =3.18/0.06= $53
Therefore value of stock for the requitred return of 12 % ,= $53
A company’s common stock has a market value of $63.18 per share and its next dividend is expected to be $3.26 per share. The stock’s beta is 1.2, the tax rate is 35%, and the market risk premium is 6.1% per year. The yield to maturity for the company’s long-term debt is 6.4% per year. If the riskiness of the company’s equity requires that it provide a risk premium of 3.2% per year over the yield on its long-term debt, what is the company’s annual cost of internal equity financing?
Answer:
Cost of equity = 9.6%
Explanation:
The cost of equity is the return a firm theoretically pays to its equity investors, In order to calculate the cost of equity here we need to add up the yield to maturity for the company's long term debt and the risk premium per year over the yield on its long term debt.
Solution
Cost of equity = Yield to maturity + Risk premium
Cost of equity = 6.4% + 3.2%
Cost of equity = 9.6%
Harver company currently produces component RX5 for its sole product. The current cost per unit to manufacture the required 58000 units of RX5 follows. Direct materials and direct labor are 100% variable. Overhead is 70% fixed. An outside supplier has offered to supply the 58000 units of RX5 for 18.50 per unit. determine the total incremental cost making 58000 units of Rx5. Determine the total incremental cost of buying 58000 units of RX5. Should the company make or buy RX%
Answer:
Decision = Make
Explanation:
The incremental cost to buy and the incremental cost to make can be calculated as follows
DATA
Direct material = $4 (100% variable)
Direct labor = $8 (100% variable)
Overhead = $9 ( 70% fixed)
Total cost per unit = $21
Offered price = $18.5 per unit
Total units = 58,000
Solution
Incremental cost of making
Direct material ( 58,000 x $4) = $232,000
Direct labor (58,000 x $8) = $464,000
Overhead ( 58,000 x $9 x 30%) = $156,600
Total cost = $825,600
Incremental cost of buying
Total cost = No. of units x offered price
Total cost = 58,000 x $18.5
Total cost = $1,073,000
Decision: The company should make the product as the total cost to buy is $247,400 higher than the cost to make.
On January 1, Year 1, St. Clair Corporation issues 7%, 11-year bonds with a face amount of $90,000 for $83,497. The market interest rate is 8%. Interest is paid semiannually on June 30 and December 31. Complete the necessary journal entry for the issuance of the bonds by selecting the account names from the drop-down menus and entering the associated dollar amounts.
Answer:
Cash $83,497 (debit)
Investment in Bonds $83,497 (credit)
Explanation:
On Issuance of Bond, the Bond Issuer must recognize the Assets of Cash at the amount of consideration paid by the Bond Holder (Investor).
Also, the Financial Liability : Investment in Bonds must also be recognized by the Issuer at the same amount that the cash has been recognized at.
McCall Corporation has a capital structure consisting of 55 percent common equity, 30 percent debt, and 15 percent preferred stock. Any debt issues would have a pre-tax cost of 9.5%. Preferred stock can be issued for a cost of 11.5%. Common equity can be issued, but flotation costs of $4.25 per share of common stock would be paid. McCall common stock is currently selling in the market at $65 per share. McCall recently paid a dividend of $4 per share and company earnings and dividends are expected to grow at an annual rate of 8% indefinitely. McCall has a marginal tax rate of 35% and the firm wants to keep its current capital structure. If the firm needs to raise additional equity, what will be the firm's cost of capital?
Answer:
WACC = 12.14%
Explanation:
Cost of debt = 9.5% x (1 - 35%) = 6.175%
Cost of preferred stock = 11.5%
Cost of equity (Re) = {D₁ / [P₀(1 - F)]} + g
Re = {($4.25 x 1.08) / [$65 x (1 - $4.25/$65)]} + 8% = ($4.59 / $60.75) + 8% = 15.56%
WACC = (15.55% x 0.55) + (6.175% x 0.30) + (11.5% x 0.15) = 8.56% + 1.85% + 1.73% = 12.14%
You are feeling overwhelmed by the number of potential goals you could set for your business unit. You ask your colleague Dan for advice on the process he uses to set goals. Which of the following suggestions from Dan is wrong? He suggests that you
Answer:
prioritize goals according to their value to the organization
Explanation:
Goal setting is an action plan that is set to motivate someone towards achieving a goal. Individuals, organizations set goals as part of their personal development plans hence must be Specific, Measurable, Action oriented, Realistic and Timely(SMART).
With regards to the above scenario, prioritizing goals according to their value to the organization is wrong. While it is important to prioritize goals, such must however be made to align with the business's strategic objectives.
It is also important to stick to goals already set instead of constantly changing them. Sometimes too, customers put pressure on business owners to consider certain goals which might be beneficial; such should also be looked into after considering their pros and cons.
Assume the Apple division of the Gala Company had the following results last year (in thousands). Managements required rate of return is 10% and the weighted average cost of capital is 8%. Its effective tax rate is 30%. What is Apple division's residual income
Answer:
$50,000
Explanation:
The computation of the residual income for each division is shown below:
As we know that
Residual income = Operating income - target income
where,
Operating income is given in the question
And, the target income could be calculated by
= Average invested assets × required rate of return
= $4,500,000 × 10%
= $450,000
So, the residual income is
= $500,000 - $450,000
= $50,000
In 2019, Tim sells Section 1245 property for $28,000 that he had purchased in 2009. Tim has claimed $5,000 in depreciation on the property and originally purchased it for $15,000. How much of the gain is taxable as ordinary income?
Answer:
The taxable amount at an ordinary rate = $5000
Explanation:
The selling price of a property in 2019 is = $28000
The depreciation on the property = $5000
Original purchased price of property = $15000
Adjusted tax = an orginal price – depreciation
Adjusted tax = 15000 – 5000 = $10000
Gain = selling price – adjusted tax
Gain = 28000 – 10000 = $18000
The part of gain ($18000) that is taxable as ordinary rate = $5000
Here, $13000 will be taxed as section 1231 as a gained tax at capital gain rate.
Sea Blue manufactures flotation vests in Charleston, South Carolina. Sea Blue's contribution margin income statement for the month ended December 31, 2018, contains the following data:
Sea Blue
Income Statement
For the Month Ended December 31, 2018
Sales in Units 32,000
Net Sales Revenue $608,000
Variable Costs:
Manufacturing 96,000
Selling and Administrative 108,000
Total Variable Costs 204,000
Contribution Margin 404,000
Fixed Costs:
Manufacturing 124,000
Selling and Administrative 94,000
Total Fixed Costs 218,000
Operating Income $186,000
Suppose Overboard wishes to buy 4,600 vests from Sea Blue. Sea Blue will not incur any variable selling and administrative expenses on the special order. The Sea Blue plant has enough unused capacity to manufacture the additional vests. Overboard has offered $15 per vest, which is below the normal sales price of $19.
1. Identify each cost in the income statement as either relevant or irrelevant to Sea Blue's decision.
a. Variable Manufacturing Costs
b. Variable Selling and Administrative Costs
c. Fixed Manufacturing Costs
d. Fixed Selling and Administrative Costs
2. Prepare a differential analysis to determine whether Sea Blue should accept this special sales order.
3. Identify long-term factors Sea Blue should consider in deciding whether to accept the special sales order. In addition to determining the special order's effect on operating profits, Sea Blue's managers also should consider the following:
A. Will Sea Blue's other customers find out about the lower sale price Sea Blue accepted from Overboard? If so, will these other customers demand lower sale prices?
B. Will the special order customer come back again and again, asking for the same reduced price?
C. How will Sea Blue's competitors react? Will they retaliate by cutting their prices and starting a price war?
D. All of the above
E. None of the above
Answer:
1. Variable Cost
Manufacturing 96,000 ( Relevent )
Selling and administrative 108,000 ( Irrelevent )
Fixed Cost
Manufacturing 124,000 ( Irrelevent )
Selling and administrative 94,000 (Irrelevent )
2. $55,200
3. A. If the regular customer found out about this order and will demand a lower price?
B. Will this order customer come back again and again asking the same reducted price?
C. Will this order price will start a price war with the competitors?
Explanation:
1. Calculation to Identify each cost in the income statement as either relevant or irrelevant to Sea Blue's decision.
Variable Cost
Manufacturing 96,000 ( Relevent )
Selling and administrative 108,000 ( Irrelevent )
Fixed Cost
Manufacturing 124,000 ( Irrelevent )
Selling and administrative 94,000 (Irrelevent )
2. Preparation of a differential analysis to determine whether Sea Blue should accept this special sales order.
Differential analysis
Expected increase in income in revenue
( 4,600 vest * $15 per vest ) 69,000
Less :Expected increase in Variable manufacturing
( 4,600 vest * $3 per vest) (13,800)
=$55,200
Variable manufacturing cost of $96,000 / divide by 32,000 units will give us $3
Based on the above calculation Sea blue should accept this order reason been that the order will increase their operating income by the amount of $55,200.
3. The manager of Sea blue should know that the sale might affect their regular sale in long run.
Therefore In addition to determining the special order's effect on operating profits, Sea Blue's managers also should consider:
A. If the regular customer found out about this order and will demand a lower price?
B. Will this order customer come back again and again asking the same reducted price?
C. Will this order price will start a price war with the competitors?
