Differential Analysis Special Order Utilizing Constrained

Resources Sell or Process Further Dropping or Retaining a

Segment Make or Buy

10-4 Special Order

10-4 - Special Order

Per UnitTotal 10

BraceletsIncremental Revenue ………………………………….. 349.95$ 3,499.50$

Less Incremental CostsVariable Costs

Direct Materials ………………………………….. 143.00 1,430.00 Direct Labor ………………………………………… 86.00 860.00 Variable Manufacturing Overhead ……. 7.00 70.00 Special Materials ………………………………… 6.00 60.00

Total Variable Cost 242.00 2,420.00 Fixed Cost

Special Tool ……………………………………….. 465.00 Total Incremental Cost ………………………………… 2,885.00 Incremental Net Operating Income ……………. 614.50$

10-4 Special Order

10-5 Utilizing Constrained Resources

10-5 Utilizing Constrained Resources

(1) Ski Vault Golf Cady Fishing QuiverSelling Price per Unit 220$ 300$ 175$ Variable Cost per Unit 60$ 120$ 55$ Contibution Margin per Unit 160$ 180$ 120$

Time required to produce 1 unit (minutes) 4 5 2Contribution Margin per minute 40$ 36$ 60$

(2) Ski Vault Golf Cady Fishing QuiverSelling Price per Unit 220$ 300$ 175$ Variable Cost per Unit 60$ 120$ 55$ Contibution Margin per Unit 160$ 180$ 120$ Pounds of plastic required per unit 5 6 5Contribution Margin per minute 32$ 30$ 24$

(3)

10-7 - Sell or Process Further

Sales Value after Additional Process 80,000$ 150,000$ 75,000$ Sales Value at Split-off 50,000 90,000 60,000 Incremental Revenue from additional process 30,000 60,000 15,000 Less: Additional Processing Costs 35,000 40,000 12,000 Profit (Loss) from Additional Processing (5,000)$ 20,000$ 3,000$

10-7 Sell or Process Further

10-7 Sell or Process FurtherX Y Z

Sales Value after Additional Process 80,000$ 150,000$ 75,000$ Sales Value at Split-off 50,000 90,000 60,000 Incremental Revenue from additional process 30,000 60,000 15,000 Less: Additional Processing Costs 35,000 40,000 12,000 Profit (Loss) from Additional Processing (5,000)$ 20,000$ 3,000$

Split-off Process further

Process further

10-12 Make or Buy a Component

10-12 Make or Buy a Component

Per unit Make BuyDirect Materials 4.80 96,000 Direct Labor 7.00 140,000 Variable Overhead 3.20 64,000 Fixed Overhead 4.00 80,000

Outside Purchase Price 23.50 470,000 Total Cost 380,000 470,000 Rental of idle resources (opportunity cost) 150,000 Total Cost 530,000 470,000 Net benefit of buying from the supplier 60,000

Total Relevant Costs of 20,000 units

10-15 Dropping or Retaining a Segment

10-15 Dropping or Retaining a Segment

Contribution margin lost if the Bath Department is dropped:Lost from the Bath Department 700,000$ Lost from the Kitchen Department (10% × $2,400,000) 240,000

Total lost contribution margin 940,000$ Less avoidable fixed costs ($900,000 – $370,000) 530,000

Decrease in overall net operating income 410,000$