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Haslett Inc
Sales (units) 90,000
Cost/unit $
Sales 50.00 4,500,000
Less: Variable Cost- COGS 25.00 2,250,000
- Selling & Admin 2.50 225,000
Contribution Margin 22.50 2,025,000
Less: Fixed Cost
- COGS 10.00 900,000
- Selling & Admin 1.50 135,000
Net income 11.00 990,000
P7-1A a) An incremental analysis for the special order
Sales (units) 9,000
Reject
Order
9,000 units
Accept
Order 9,000
units
Net Income
Inc/(Dec)
Cost/unit $ $ $
Sales 32.00 0 288,000 288,000
Less: Variable Cost 0
- COGS 25.00 0 225,000 225,000
- Selling & Admin 3.00 0 27,000 27,000
Contribution Margin 4.00 0 36,000 36,000
Less: Fixed Cost
- COGS 0 0 0 0
- Selling & Admin 0 0 0 0Net income 4.00 0 36,000 36,000
b)
c)
d)
- maintenance cost
- machine capacity
Yes, Haslett Inc should accept the order since it will
contribute an additional
income of $36,000
The minimum selling price on the special order to produce net
income $5.00 per
ball:The current selling price per ball of $32 contribute a
profit margin of $4.00 per ball
. Therefore, to gain profit $5.00 per ball, then the selling
price should be increase
to another dollar ie $33 per ball.
The nonfinancial factors should management consider in making
its decision:
- machine age
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P7-2A Dunham Manufacturing Company
a) Incremental Analysis for make or buy decision
Make BuyNet Income
Inc/(Dec)
$ $ $
Direct Material 35,000 x 2.2 77,000 0 77,000
Direct Labour 3 x 2000hrs x 12 72,000 0 72,000
Manufacturing Cost 10,300 0 10,300
Rental 5,000 x $0.80 4,000 0 4,000
Purchase Price 35,000 x $4.00 0 140,000 (140,000)
Receiving Clerk 0 8,500 (8,500)
Freight 35000 x $0.50 0 17,500 (17,500)
Total Annual Cost 163,300 166,000 (2,700)
Dunham should make the part as it will incurred loss of $2,700
if Dunham purchase the part.
b)
Make Buy
Net Income
Inc/(Dec)
$ $ $
Direct Material 35,000 x 2.2 77,000 0 77,000
Direct Labour 3 x 2000hrs x 12 72,000 0 72,000Manufacturing Cost
10,300 0 10,300
Rental 5,000 x $0.80 4,000 0 4,000
Purchase Price 35,000 x $4.00 0 140,000 (140,000)
Receiving Clerk 0 8,500 (8,500)
Freight 35000 x $0.50 0 17,500 (17,500)
Opportunity Cost 12,000 12,000
Total Annual Cost 175,300 166,000 9,300
$12,000 is an opportunity cost to the rental saving of
$4,000.
c)
Incremental analysis on additional $12,000 net income on
released facilities if the management
decide to purchase the part
Dunham should purchase the part as it will incurred additional
profit of $12,000 to the savings
on the rental storage space which has increase the income by
$9,300.
The nonfinancial factors that Dunham should consider in the
decision are:
- the company will be at risk if continuing dependant on
suppliers of the part;
- the direct labour will have to be terminated if Dunham decise
to purchase the parts;
- the quality of purchase parts may be not the same quality to
the make parts;
