Reference no: EM133205908

MANAGERIAL ACCOUNTI- ETP DIFFERENTIAL COSTING ANALYSIS

A. King Richard Company needs 10,000 units of a certain part to be used in its production cycle. The following information is available:

Cost to King Richard to make the part:             Cost to buy the part from 

          Direct materials                 P     6                     Ultima Company      P 53

          Direct labor                            24                      

Variable overhead                           12

Fixed overhead                                15  P 15

If King Richard buys the part from Ultima instead of making it, King Richard could not use the released facilities in another manufacturing activity. Sixty percent of the fixed overhead will continue regardless of what decision is made. 

In deciding whether to make or buy the part:

REQUIRED:

1. What are the alternatives that King Richard Company based on the above information?
2. What are the related relevant items and it relevant cost?
3. Compute for the total relevant costs if the Company decided to make the parts?
4. What could be the decision of King Richard Company, is it to make the parts or buy it from the present supplier?

B. Shown below is a segmented income statement for Hicks company's three wooden flooring product lines:

                                           Strip             Plank          Parquet        Total

Sales revenue                   P440,000      P200,000      P300,000      P900,000

Less: Variable expenses     225,000        120,000        250,000        595,000

Contribution margin           P175,000      P  80,000      P 50,000      P305,000 

Less: Direct fixed expenses

          Machine rent           (     5,000)     (   20,000)     (   50,000)     (  75,000)

          Supervision             (   15,000)     (   10,000)     (   20,000)     (  45,000)

          Depreciation            (   35,000)     (   10,000)     (   25,000)    (  70,000)

Segment margin                P120,000      P 40,000      P(45,000)     P115,000

Hick's management is deciding whether to keep or drop the parquet product line. Hick's parquet flooring product line has a contribution margin of P50,000 (sales P300,000 less total variable costs of P250,000). All variable costs are relevant. Relevant fixed costs associated with this line include 80% of parquet's machine rent and all of parquet's supervision salaries.

REQUIRED:

1. List the alternatives being considered with respect to the parquet flooring line.
2. List the relevant benefits and costs for each alternative.
3. Which alternative is more cost effective and by how much?

C. Comfort Fit Company manufactures two types of university sweatshirts, the Swoop and the Rufus, with unit contribution margins of P5 and P15, respectively. Regardless of type, each sweatshirt must be feed through a stitching machine to affix the appropriate university logo. The firm leases seven machines that each provides 1,000 hours of machine time per year. Each Swoop sweatshirt requires 6 minutes machine time, and each Rufus sweatshirt requires 20 minutes of machine time. (Note: For all answers, that are less than1.0, round the answer to 2 decimal places. For all unit answer (e.g., the answer is greater than 1.0, round the answer to the nearest whole number.)

REQUIRED:

1. What is the contribution margin per hour of machine time for each type of sweatshirt?
2. What is the optimal mix of sweatshirts?
3. What is the total contribution margin earned for the optimal mix?