| *Allocated on the basis of program revenues. |
| The head administrator of Jackson County Senior Services, Judith Miyama, is concerned about the organization’s finances and considers the net operating income of $44,800 last year to be too small. (Last year’s results were very similar to the results for previous years and are representative of what would be expected in the future.) She feels that the organization should be building its financial reserves at a more rapid rate in order to prepare for the next inevitable recession. After seeing the above report, Ms. Miyama asked for more information about the financial advisability of discontinuing the housekeeping program. |
| The depreciation in housekeeping is for a small van that is used to carry the housekeepers and their equipment from job to job. If the program were discontinued, the van would be donated to a charitable organization. Depreciation charges assume zero salvage value. None of the general administrative overhead would be avoided if the housekeeping program were dropped, but the liability insurance and the salary of the program administrator would be avoided. |
| Required: |
| 1a. | What is the impact on net operating income by discontinuing housekeeping program? (Input the amount as apositive value. Omit the “$” sign in your response.) |
Questions No.2
| Climate-Control, Inc., manufactures a variety of heating and air-conditioning units. The company is currently manufacturing all of its own component parts. An outside supplier has offered to sell a thermostat to Climate-Control for $31 per unit. To evaluate this offer, Climate-Control, Inc., has gathered the following information relating to its own cost of producing the thermostat internally: |
| Per Unit | 14,600 Units per year | |||
| Direct materials | $ | 9 | $ | 131,400 |
| Direct labor | 11 | 160,600 | ||
| Variable manufacturing overhead | 2 | 29,200 | ||
| Fixed manufacturing overhead, traceable | 6* | 87,600 | ||
| Fixed manufacturing overhead, common, but allocated | 13 | 189,800 | ||
| Total cost | $ | 41 | $ | 598,600 |
| *40% supervisory salaries; 60% depreciation of special equipment (no resale value). |
| Required: |
| 1a. | Assuming that the company has no alternative use for the facilities now being used to produce the thermostat, compute the total cost of making and buying the parts. (Round your Fixed manufacturing overhead per unit rate to two decimals and your final answers to the nearest dollar amount.Omit the “$” sign in your response.) |
| Make | Buy | |
| Total relevant cost (14,600 units) | $ | $ |
| 2a. | Suppose that if the thermostats were purchased, Climate-Control, Inc., could use the freed capacity to launch a new product. The segment margin of the new product would be $116,360 per year. Compute the total cost of making and buying the parts. (Round your Fixed manufacturing overhead per unit rate to two decimals and your final answers to the nearest dollar amount. Omit the “$” sign in your response.) |
