increasing sales revenue and operating expenses by the same dollar amount.
(TCO D) Data for December concerning Dinnocenzo Corporation’s two major business segments-Fibers and Feedstocks-appear below.
Common fixed expenses totaled $314,000 and were allocated as follows: $129,000 to the Fibers business segment and $185,000 to the Feedstocks business segment.
Prepare a segmented income statement in the contribution format for the company. Omit percentages; show only dollar amounts.
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All fixed expenses of the company are fully allocated to products in the company’s accounting system. Further investigation has revealed that $55,000 of the fixed manufacturing expenses and $71,000 of the fixed selling and administrative expenses are avoidable if product S85U is discontinued.
i. According to the company’s accounting system, what is the net operating income earned by product S85U? Show your work!
ii. What would be the effect on the company’s overall net operating income of dropping product S85U? Should the product be dropped? Show your work! (Points : 15)
An outside supplier has offered to sell the company all of these parts it needs for $51.90 a unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units of a product that is in high demand. The additional contribution margin on this other product would be $219,000 per year.
If the part were purchased from the outside supplier, all of the direct labor cost of the part would be avoided. However, $6.20 of the fixed manufacturing overhead cost being applied to the part would continue even if the part were purchased from the outside supplier. This fixed manufacturing overhead cost would be applied to the company’s remaining products.
i. How much of the unit product cost of $52.30 is relevant in the decision of whether to make or buy the part?
ii. What is the net total dollar advantage (disadvantage) of purchasing the part rather than making it?
iii. What is the maximum amount the company should be willing to pay an outside supplier per unit for the part if the supplier commits to supplying all 30,000 units required each year? (Points : 15)
The decision to keep an old machine or buy a new one