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Answered: - Directions: Answer all three questions. Please submit your


Directions: Answer all three questions.?Please submit your work in Word or PDF formats only.You can submit an Excel file to support calculations, but please ?cut and paste? your solutions into the Word or PDF file. Be sure to show how you did your calculations.?


ACT 5140 ? Accounting for Decision Makers

 

HW #5 ? Chapter 4

 

Directions: Answer all the questions. Please submit your work in Word or PDF formats only.

 

You can submit an Excel file to support calculations, but please ?cut and paste? your

 

solutions into the Word or PDF file. Be sure to show how you did your calculations. Also,

 

please be sure to include your name at the top of the first page of your file.

 

Question #1

 

Consider the following information, prepared based on a monthly capacity of 80,000 units:

 

Category

 

Variable manufacturing costs

 

Fixed manufacturing costs

 

Variable selling costs

 

Fixed selling costs

 


 

Cost per Unit

 

$24

 

$5

 

$4

 

$1

 


 

Capacity cannot be added in the month and the firm currently sells the product for $40 per unit.

 

Consider each of these scenarios independent of each other.

 

a) The company is currently producing 72,000 units per month. A potential customer has

 

contacted the firm and offered to purchase 8,000 units this month only. The customer is

 

willing to pay $33 per unit. Since the potential customer approached the firm, there will be no

 

variable selling costs incurred. Should the company accept the special order? Why or why

 

not? Be specific.

 

b) Assume the same facts as in part a, except that the company is producing 80,000 units per

 

month. Should the company accept the special order? Why or why not? Be specific.

 

c) List and describe other factors (not those addressed in parts a and b) that should be taken into

 

consideration when deciding whether to accept a special order? Be specific in your

 

responses.

 


 

Question #2

 

Consider the following information, prepared based on monthly production and sales of 50,000

 

units:

 

Category

 

Variable manufacturing costs

 

Variable marketing costs

 


 

Cost per Unit

 

$8.00

 

$3.00

 


 

The firm has total fixed costs of $250,000 and currently sells the product for $15 per unit.

 

a) Assume the company is producing and selling 50,000 units per month. It is considering

 

an arrangement where an outside manufacturer would produce and ship the product

 

directly to customers. Under this arrangement, variable marketing costs would decrease

 

40% per unit and $80,000 in fixed costs would be avoided. What is the maximum amount

 

per unit the company would be willing to pay to the outside manufacturer?

 

b) List and describe other factors that should be taken into consideration when deciding

 

whether to accept this offer. Be specific in your responses.

 

Question #3

 

A consulting company performs a ?basic? market analysis for a client. It incurs costs of $15,000

 

in performing the analysis and plans to sell the report to the client for $33,000. After reviewing

 

the initial report, the client asks the firm if it is willing to do a more extensive report. The client

 

offers to pay $65,000 for a more extensive report. If the more extensive report is done, the client

 

will NOT pay the $33,000. If the consulting firm estimates it will require $22,000 in additional

 

expenses to complete the more extensive report, should it agree to do the more extensive report?

 

Why or Why not? Be specific in your response.

 

Question #4

 

Assume an engineering company provides services for three types of clients. Each service

 

requires a different amount of a specific form of specialized labor that is in limited supply.

 

If the company is limited to 14,000 hours of this specialized labor, how many clients of each

 

type should it accept in order to maximize operating income?

 

Client Type

 

Revenue per client

 

Variable costs per client

 

Specialized labor hours required per client

 

Maximum clients available

 


 

A

 


 

B

 


 

C

 


 

$1,600

 


 

$4,500

 


 

$2,400

 


 

$600

 


 

$1,800

 


 

$1,000

 


 

8

 


 

25

 


 

10

 


 

700

 


 

400

 


 

500

 


 

 


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