Exercise Topic 5-Answer
Exercise Topic 5-Answer
Exercise Topic 5-Answer
Answer to Exercise 1
(c)
Reject Accept Net
Order Order Income
Increase/
(Decrease)
Revenues (4,000 x $15) $0 $60,00 $60,000
Costs: 0
Variable manufacturing (4,000 x $11.00) 0 (44,000)
Sales commission 0 44,000 (3,000)
Shipping (4,000 x $2.00) 0 3,000 (8,000)
Stamping machine 0 8,000 (2,500)
Total costs 0 2,500 57,500
57,500
Ramos Company should accept the special order because it will produce $2,500
of incremental net income.
(d) The cost of the special order = $57,500 ÷ 4,000 = $14.375 Thus, the minimum
selling price to produce net income of $1.20 per unit is $15.58.
1
BKAM3023 Management Accounting II
Answer to Exercise 2
(a)
Make Buy Net
WISCO WISCO Income
Increase/
(Decrease
)
Direct materials $33,250 $ 0 $33,250
Direct labor 33,600 0 33,600
Indirect labor 3,150 0 3,150
Utilities 2,450 0 2,450
Rent – factory space 2,500 900 1,600
Property taxes 600 200 400
Insurance 1,500 600 900
Purchase price 0 77,000 (77,000)
Freight and inspection 0 2,100 (2,100)
Receiving costs 0 750 (750)
Total annual cost $77,050 $81,550 ($4,500)
(b) The company should continue to make WISCO because net income would be
$4,500 less if WISCO were purchased from the supplier.
(c) The decision would be different. Because of the opportunity cost of $5,000, net
income will be $500 higher if WISCO is purchased as shown below:
Make Buy Net
WISCO WISCO Income
Increase
(Decrease)
Total annual cost $77,050 $81,550 $(4,500)
Opportunity cost 5,000 0 5,000
Total cost $82,050 $81,550 $ 500
2
BKAM3023 Management Accounting II
Answer to Exercise 3
(a) Decision rule: Drop if Total FC saved is more than total CM lost
FC saved = 11,000 + 1,500 + 3,000 = 15,500
Total CM = 47,000 - 29,000 = 18,000
Decision: Since total FC saved is less than total CM lost, then BRSB should
maintain Split Division. In other words, it is not worthwhile to drop Split Division.
Answer to Exercise 4