Velstrom Ltd is considering outsourcing one of its products rather than producing it in its factory. The business allocates part of the total rental charge of the factory, based on floor area, on the section responsible for making the product. The section bears a charge of £20,000 per year. If the section were closed, the floor space released would be used for warehousing and, as a result, the business would give up the tenancy of an existing warehouse for which it is paying £25,000 a year. SO what is the answer
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- Fusion Metals Company is considering the elimination of its Packaging Department. Management has received an offer from an outside firm to supply all Fusion’s packaging needs. To help her in making the decision, Fusion’s president has asked the controller for an analysis of the cost of running Fusion’s Packaging Department. Included in that analysis is $9,100 of rent, which represents the Packaging Department’s allocation of the rent on Fusion’s factory building. If the Packaging Department is eliminated,the space it used will be converted to storage space. Currently Fusion rents storage space in a nearby warehouse for $11,000 per year. The warehouse rental would no longer be necessary if the Packaging Department were eliminated. Required:1. Discuss each of the figures given in the exercise with regard to its relevance in the departmentclosing decision.2. What type of cost is the $11,000 warehouse rental, from the viewpoint of the costs of the Packaging Department?JJ King Ltd is a building contractor with a varying workload. In order to compensate for the irregularity of its contracted building projects, JJ King also purchases large vacant blocks of land that it later subdivides for the construction of houses and units. JJ King then sells these on its own account. Your analysis strongly suggests that the apportionment of costs to houses and units sold has been kept low to boost profits. In your opinion, this has resulted in the overvaluation of the unsold properties. The directors of the company do not agree and hold to their view that the stock of properties is correctly valuedThe company has an offer from Duvall Valves to produce the part for $2,000 per unit and supply 1,000 valves (the number needed in the coming year). If the company accepts this offer and shuts down production of valves, production workers and supervisors will be reassigned to other areas. The equipment cannot be used elsewhere in the company, and it has no market value. However, the space occupied by the production of the valve can be used by another production group that is currently leasing space for $55,000 per year. What is the incremental savings of buying the valves? (The answer should be stated in a per-unit format and is a positive number)
- Kando Company incurs a $9 per unit cost for Product A, which it currently manufactures and sells for $13.50 per unit. Instead of manufacturing and selling this product, the company can purchase it for $5 per unit and sell it for $12 per unit. If it does so, unit sales would remain unchanged and $5 of the $9 per unit costs of Product A would be eliminated. Should the company continue to manufacture Product A or purchase it for resale?Lake Corporation is considering the elimination of one of its segments. The segment incurs the following fixed costs. If the segment is eliminated, the building it uses will be sold. Advertising expense Supervisory salaries Allocation of companywide facility-level costs Original cost of building Book value of building Market value of building i Maintenance costs on equipment Real estate taxes on building $140,000 300,000 Avoidable cost 130,000. 220,000 100,000 160,000 112,000 12,000 Required Determine the amount of avoidable cost associated with the segment.The sales manager of Lugi Company is at a loss on what to do with 10,000 units of defective parts on stock with a cost of P 25,000. Two proposals submitted for his consideration are as follows: a) sell the parts as scrap for P 1.75 per unit. b) Re-work the parts at a cost of P 12,500 and sell them for P 5 per unit. What is the net advantage or disadvantage of the proposal to re-work? P 20,000 advantage P 37,500 advantage P 7,500 disadvantage P 12,500 advantage
- Brigg Enterprise is considering closing down its Austrian location. This location presently has a contribution margin of $1,000,000. Overhead allocated to it is $2,500,000, of which $250,000 cannot be eliminated. If this location were to discontinue operations, by what amount would Brigg's pre-tax income increase? options are: $250,000. $1,000,000. $1,250,000. $1,500,000.Wilson is currently producing a component for one of its products. Wilson has received an offer to buy the component from an outside supplier. A machine is currently being rented to manufacture the component. If the company buys the component, the rental will be cancelled. What is the rent on the machine, in relation to the decision to make or buy the component? Sunk and therefore not relevant Avoidable and therefore not relevant Avoidable and therefore relevant Unavoidable and therefore relevantRequired : i) List the alternatives facing Zee Manufacturing with respect to production of component S6 . ii) List the relevant costs for each alternative if Zee decides to purchase the component from Bryan . Predict whether the operating income will increase or decrease and better alternatives . b) Refer to the information for Zee Manufacturing above . Assume that 75 % of Zee Manufacturing's fixed overhead for component S6 would be eliminated if that component were no longer produced . Required : If Zee decides to purchase the component from Bryan , predict whether the operating income will increase or decrease and propose the better alternatives .
- The Coldplay Company is evaluating an option to outsource production of its only product, while it will continue to perform all sales, marketing and administration duties in-house. Coldplay incurs direct materials, direct labor and variable overhead costs of $20 for each unit of product it manufactures. In addition, Coldplay incurs fixed manufacturing overhead costs annually of $1,000,000 and has annual production of 100,000 units. Coldplay has determined that it could avoid all fixed manufacturing costs if it outsources production. Based on a quantitative analysis only of this information, is the following statement true or false? Coldplay should make the decision to outsource production of its only product if a third-party supplier offers to manufacture and sell to Coldplay the product for less than $30 per unit. True or False?Maroon Ltd is a company that produces chemicals for the cleaning industry. One of its processes manufactures join products Y and Z, and by-product X. The company uses the net realizable value of its joint products to allocate joint production costs. The by-product is valued for inventory purposes at its market value less its disposal cost, and this value is used to reduce the joint production cost of P2,015,000. Information regarding the company’s August 2020 operations are presented below: In liters Y Z X Finished Goods inventory, August 1 30,000 100,000 40,000 August Sales 1,340,000 760,000 240,000 August Production 1,600,000 800,000 200,000 In Peso Further Processing cost 1,400,000 1,520,000 Final Sales value per Liter 10 14 Sales value per liter at split off 2.40 Disposal Cost per liter 0.40 Required: Calculate the by-product income Calculate the adjusted joint…Yeye co. is considering dropping a product. Variable cost is P60.00 per unit. Fixed overhead costs, exclusive of depreciation, have been allocated at a rate of P3.50 per unit and will continue whether or not production ceases. Depreciation on the equipment is P60,000 a year. If production is stopped, the equipment can be sold for P300,000, if production continues, however, it will be useless at the end of 1 year and will have no salvage value. The selling price is P100 a unit. Ignoring taxes, the minimum number of units to be sold in the current year to break even on a cash flow basis is