Reference no: EM131822972

1. Special Order

Tobitzu TV produces wall mounts for flat panel television sets. The forecasted income statement for 2009 is as follows:

Sales ($46 per unit)	$4,600,000
Cost of good sold ($32 per unit)	(3,200,000)
Gross profit	1,400,000
Selling expenses ($5 per unit)	(500,000)
Net income	$900,000

Additional Information

(1) Of the production costs and selling expenses, $800,000 and $100,000, respectively, are fixed. (2) Tobitzu TV received a special order from a hospital supply company offering to buy 14,000 wall mounts for $30. If it accepts the order, there will be no additional selling expenses, and there is currently sufficient excess capacity to fill the order. The company's sales manager argues for rejecting the order because "we are not in the business of paying $32 to make a product to sell for $30."

Calculate the net benefit (cost) of accepting the special order.

2. Sell or Process Further

Great Lakes Boat Company manufactures sailboat hulls at a cost of $4,200 per unit. The hulls are sold to boat yards for $4,800. The company is evaluating the desirability of adding masts, sails, and rigging to the hulls prior to sale at an additional cost of $2,600. The completed sailboats could then be sold for $6,900 each.

Calculate the net benefit (cost) of processing the boat hulls into sail boats. Assume sales volume will not be affected. Use a negative sign with your answer, if appropriate.

3. Make or Buy

Rashad Rahavy, M.D., is a general practitioner whose offices are located in the South Falls Professional Building. In the past, Dr. Rahavy has operated his practice with a nurse, a receptionist/secretary, and a part-time bookkeeper. Dr. Rahavy, like many small-town physicians, has billed his patients and their insurance companies from his own office. The part-time bookkeeper, who works 10 hours per week, is employed exclusively for this purpose.

North Falls Physician's Service Center has offered to take over all of Dr. Rahavy's billings and collections for an annual fee of $9,000. If Dr. Rahavy accepts this offer, he will no longer need the bookkeeper. The bookkeeper's wages and fringe benefits amount to $12 per hour, and the bookkeeper works 50 weeks per year. With all the billings and collections done elsewhere, Dr. Rahavy will have two additional hours available per week to see patients. He sees an average of three patients per hour at an average fee of $20 per visit. Dr. Rahavy's practice is expanding, and new patients often have to wait several weeks for an appointment. He has resisted expanding his office hours or working more than 50 weeks per year. Finally, if Dr. Rahavy signs on with the center, he will no longer need to rent a records storage facility for $100 per month.

(a) Calculate the net benefit (cost) of outsourcing the bookkeeping.

(b) In making a final decision, all of the following are possible disadvantages that should be considered by Dr. Rahavy, except:

It could become more expensive than the bookkeeper in the future if the outside provider increases fees.Not having to be concerned about managing this function internally, and being able to focus entirely on serving patients.The loss of direct control of this important function.The quality of the outsourced service may not meet expectations.None of the above.