Because the company is in a start-up stage, corporate management feels that the East sales territory is creating too much of a cash-drain on the company and it should be eliminated. If the East territory is discontinued, one sales manager (whose salary is $40,000 per year) will be relocated to the West territory. By how much would Green's income change if the East territory is eliminated? Sales foregone in East $(980,000) Variable costs avoided 343,000 Fixed costs avoided 410,000 Decrease in income from eliminating East $(227,000) territory ======== Q13: Jones Corp. has a capacity to produce 40,000 units. Its product sells for $50 per unit and the variable costs incurred in manufacturing and selling the product are as follows on a per unit basis: Direct materials = $10; Direct labor = $20; Variable manufacturing OH = $5; Sales commission = $3. Annual fixed manufacturing OH is $500,000 and annual fixed S G & A costs are $200,000. A customer has proposed a special order to purchase 10,000 units. If Jones accepts the order, the company would not have to pay its sales people their normal commission of $3 per unit, but the company would incur extra shipping cost of $5 per unit. Assume that Jones is operating at full capacity and will have to divert sales from regular customers, if the offer is accepted. What is the minimum price per unit below which Jones should reject the order? Ans: 50-3+5=$52 Q14-15: The following information relates to Two-4-One Corp. Service Departments Costs Service A $70,000 Service B $90,000 Production Departments Production C $16,000 Production D $21,000 Number of employees is the cost driver for service department A and square-feet is the cost driver for service department B. The cost drivers are distributed as followed: Department Square-feet Number of employees A 1,000 5 B 1,500 15 C 4,000 45 D 3,000 25 Q14: How much of the total Service Department Costs will be allocated to Production Department C (using the direct method).
Because the company is in a start-up stage, corporate management feels that the East sales territory is creating too much of a cash-drain on the company and it should be eliminated. If the East territory is discontinued, one sales manager (whose salary is $40,000 per year) will be relocated to the West territory. By how much would Green's income change if the East territory is eliminated? Sales foregone in East $(980,000) Variable costs avoided 343,000 Fixed costs avoided 410,000 Decrease in income from eliminating East territory $(227,000) ======== Q13: Jones Corp. has a capacity to produce 40,000 units. Its product sells for $50 per unit and the variable costs incurred in manufacturing and selling the product are as follows on a per unit basis: Direct materials = $10; Direct labor = $20; Variable manufacturing OH = $5; Sales commission = $3. Annual fixed manufacturing OH is $500,000 and annual fixed S G & A costs are $200,000. A customer has proposed a special order to purchase 10,000 units. If Jones accepts the order, the company would not have to pay its sales people their normal commission of $3 per unit, but the company would incur extra shipping cost of $5 per unit. Assume that Jones is operating at full capacity and will have to divert sales from regular customers, if the offer is accepted. What is the minimum price per unit below which Jones should reject the order? Ans: 50-3+5=$52 Q14-15: The following information relates to Two-4-One Corp. Service Departments Costs Service A $70,000 Service B $90,000 Production Departments Production C $16,000 Production D $21,000 Number of employees is the cost driver for service department A and square-feet is the cost driver for service department B. The cost drivers are distributed as followed: Department Square-feet Number of employees A 1,000 5 B 1,500 15 C 4,000 45 D 3,000 25 Q14: How much of the total Service Department Costs will be allocated to Production Department C (using the direct method).
SAMPLE3_SOL.docx