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Exercise 11-11 Make or Buy Decision [LO11-3) Han Products manufactures 35,000 units of part 5-6 each year for use on its production line

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Exercise 11-11 Make or Buy Decision [LO11-3) Han Products manufactures 35,000 units of part 5-6 each year for use on its production line. At this level of activity, the cost per unit for part S-6 is: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost per part $ 3.90 12.ee 2.10 9.00 $ 27.ee An outside supplier has offered to sell 35,000 units of part 5-6 each year to Han Products for $23 per part. If Han Products accepts this offer, the facilities now being used to manufacture part 5-6 could be rented to another company at an annual rental of $85.000 However. Han Products has determined that two-thirds of the fixed manufacturing overhead being applied to part 5-6 would continue even if part 5-6 were purchased from the outside supplier. Required: What is the financial advantage (disadvantage) of accepting the outside supplier's offer? Exercise 11-2 Dropping or Retaining a Segment [L011-2] The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow: Dirt Mountain Racing Total Bikes Bikes Bikes $ 920,000 $262, eee $ 481,800 $ 257,800 468,000 117, eee 194,000 157,00 452, Bee 145,eee 287, eee 189, 890 Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses Total Fixed expenses Net operating income (loss) 69,600 8,488 40,300 20,900 44,300 20, 500 8,eee 15,800 115,800 40,400 38,500 36,900 184,889 52,400 se, 200 51,400 413,700 121,789 167.000 125,800 $ 38,300 $ 23,300 $ 40,000 $(25,000) "Allocated on the basis of sales dollars. Management is concerned about the continued losses shown by the racing bikes and wants a recommendation as to whether or not the line should be discontinued. The special equipment used to produce racing bikes has no resale value and does not wear out. Required: 1. What is the financial advantage (disadvantage) per quarter of discontinuing the racing bikes? 2 Should the production and sale of racing bikes be discontinued? 3. Prepare a properly formatted segmented income statement that would be more useful to management in assessing the long-run profitability of the various product lines. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the racing bikes? Exercise 11-2 Dropping or Retaining a segment LLO11-2] The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow. Dirt Mountain Racing Total Bikes Bikes Bikes $ 920, eee $262,800 $ 401,00 $ 257,600 468,000 117.000 194,990 157,000 452,eee 145, eee 207,800 1ee.eee Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses Total fixed expenses Net operating income (loss) 69,600 8,400 40,300 20,9ee 44,300 20, 500 8,eee 15,880 115,800 4e, tee 38,500 36,90 184, eee 52, dee 8e 2ee 51,400 413,700 121,789 167, ese 125,Bee $ 38,300 $ 23,300 $ 40,eee (25, eee) *Allocated on the basis of sales dollars. Management is concerned about the continued losses shown by the racing bikes and wants a recommendation as to whether or not the line should be discontinued. The special equipment used to produce racing bikes has no resale value and does not wear out. Required: 1. What is the financial advantage (disadvantage) per quarter of discontinuing the racing bikes? 2. Should the production and sale of racing bikes be discontinued? 3. Prepare a properly formatted segmented income statement that would be more useful to management in assessing the long-run profitability of the various product lines. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the racing bikes? *Allocated on the basis of sales dollars. Management is concerned about the continued losses shown by the racing bikes and wants a recommendation as to whether or not the line should be discontinued. The special equipment used to produce racing bikes has no resale value and does not wear out Required: 1. What is the financial advantage (disadvantage) per quarter of discontinuing the racing bikes? 2. Should the production and sale of racing bikes be discontinued? 3. Prepare a properly formatted segmented income statement that would be more useful to management in assessing the long-run profitability of the various product lines. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Prepare a properly formatted segmented income statement that would be more useful to management in assessing the long- run profitability of the various product lines. Totals Dirt Bikes Mountain Bikes Racing Bikes Contribution margin (loss) Traceable fored expenses: Total traceable fixed expenses Product line segment margin (los) Net operating income (loss) < Required 2 Exercise 11-3 Make or Buy Decision (LO11-3] Troy Engines, Ltd., manufactures a variety of engines for use in heavy equipment. The company has always produced all of the necessary parts for its engines, including all of the carburetors. An outside supplier has offered to sell one type of carburetor to Troy Engines, Ltd., for a cost of $40 per unit. To evaluate this offer, Troy Engines, Ltd. has gathered the following information relating to its own cost of producing the carburetor internally: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Total cost 18,000 Per Units Unit per Year $ 18 5 324,000 9 162, eee 2 36,000 9* 162,000 12 216,000 $ se $ 9ee, eee "One-third supervisory salaries: two-thirds depreciation of special equipment (no resale value). Required: 1. Assuming the company has no alternative use for the facilities that are now being used to produce the carburetors, what would be the financial advantage (disadvantage) of buying 18,000 carburetors from the outside supplier? 2. Should the outside suppliers offer be accepted? 3. Suppose that if the carburetors were purchased, Troy Engines. Ltd. could use the freed capacity to taunch a new product. The segment margin of the new product would be $180,000 per year. Given this new assumption, what would be the financial advantage (disadvantage) of buying 18,000 carburetors from the outside supplier? 4. Given the new assumption in requirement 3, should the outside supplier's offer be accepted? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Assuming the company has no alternative use for the facilities that are now being used to produce the carburetors, what would be the financial advantage (disadvantage) of buying 18,000 carburetors from the outside supplier? Exercise 11-4 Special Order Decision (LO11-4] Imperial Jewelers manufactures and sells a gold bracelet for $401.00. The company's accounting system says that the unit product cost for this bracelet is $260.00 as shown below: Direct materials Direct labor Manufacturing overhead Unit product cost $145 81 34 $260 The members of a wedding party have approached Imperial Jewelers about buying 27 of these gold bracelets for the discounted price of $361.00 each. The members of the wedding party would like special filigree applied to the bracelets that would require Imperial Jewelers to buy a special tool for $459 and that would increase the direct materials cost per bracelet by $5. The special tool would have no other use once the special order is completed. To analyze this special order opportunity, Imperial Jewelers has determined that most of its manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However, $6.00 of the overhead is variable with respect to the number of bracelets produced. The company also believes that accepting this order would have no effect on its ability to produce and sell jewelry to other customers. Furthermore, the company could fulfill the wedding party's order using its existing manufacturing capacity. Required: 1. What is the financial advantage (disadvantage) of accepting the special order from the wedding party? 2. Should the company accept the special order? es Complete this question by entering your answers in the tabs below. Required 1 Required 2 What is the financial advantage (disadvantage of accepting the special order from the wedding party? Required 2 >