BUSI 101 1nd Edition Lecture 21Outline of Last Lecture I. Chapter 6 Multiple Choice Questions Reviewa. Absorption versus direct costingII. Chapter 7 Introduction to Decision Makinga. Make or Buyb. Joint Dealsc. Special Dealsd. Selection of most profitable productOutline of Current Lecture I. Special Order Problema. E7-3II. Make or Buy Problema. E7-5III. Joint Cost Problema. E7-10IV. Keep Old or Buy New Problema. E7-14)V. Selection of Most Profitable Product Problema. E7-15)These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.Current Lecture(First 45 minutes of class, students asked questions regarding the take home test)Chapter 7 ContinuedE7-3) (page 315)Special Order ProblemSales 4,375,000 (350,000unitsx$12.50)-VCCGS 1,820,000 (350,000unitsx$5.20) Op. Exp. 630,000 (350,000unitsx$1.80) VC of $7 per unit=CM 1,925,000-FCCGS 780,000 Op. Exp. 210,000=Profit 935,000SP 7.60-VC 7.00=CM .60 per unit x 15,000=9,000- Shipping Costs 3,000 =6,000 better off!E7-5)MAKE OR BUYUNIT TOTAL UNIT TOTALDM $4 $120,000DL $5 $150,000VOHD $3.50 $105,000 BUY: $12.75 $382,000FOHD $1.50 $45,000 $1.50 $45,000Total $14.00 $420,000 $14.25 $427,000C) (.88) (25,000)$13.75 $402,000B) $7,500 better off by making the productC) Yes, see chartE7-10)SV@SO APC FP10 $60,000 100,000 190,000$100,000 12 $15,000 30,000 35,00014 $55,000 150,000 215,000 $130,000 280,000 440,000SV = sales value @ split off point or common process point($100,000)APC=additional processing costsFP=further processingA) Yes, we are making $30,000 in profit if all products are sold at their split off pointB) Total Rev. 440,000-Total CostsJC 100,000 APC 280,000=Profit 60,000*** essence of the problem is can you do better than $60,000?? Figure out by comparing incremental revenues with incremental costs for each productC) 10 12 14Inc. Revenues 130,000 20,000 160,000Inc. Costs 100,000 30,000 150,000=Inc. Profit 30,000 (10,000) 10,000Process 10 & 14 further, sell 12 at split off pointD) 60,000+10,000 which you would have lost by processing 12 furtherProfit=70,000E7-14)Keep Old Buy NewOp. Costs 25,000x5 (25,000)(125,000) 6,000 (100,000)(125,000) (119,000)6,000 better off by buying a new oneE7-15)Huron Division – convert their absorption costing statement into a DC statementSales 100,000-VCCGS 61,000 Op. Exp. 26,000=CM 13,000-DFC 0=Segment Margin 13,000No, we should keep the Huron Division because it has a positive Segment MarginProfit 157,000-FCGS 15,000-FOPEXP 24,000=$118,000Current Profit with Huron=$131,740If we do what Judy says we will be $13,000 worse
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