Clicker Question Preparation Guide Ch 7 Clicker questions will be asked in class based on your completion of this preparation guide Example in class question What is the answer to Question 1 b You will not have time to complete this guide in class 1 Speedy Bikes currently sells its bicycles to retailers unassembled for 450 each The cost to manufacture an unassembled bike is as follows Direct materials Direct labor Variable overhead Fixed overhead 150 70 49 21 Manufacturing cost per unit 290 Speedy currently has unused productive capacity and management has concluded that some of this capacity could be used to assemble the bikes and instead sell them to retailers for 495 each Assembling the bikes will increase direct materials by 5 per bike and direct labor by 10 per bike Additional variable overhead cost will be 7 per bike but there will be no additional fixed overhead as a result of assembling the bikes Prepare an analysis to determine if the bikes should be sold as is unassembled or processed further and sold as assembled bikes 2 Toby s Treats owns a machine that produces baskets for the gift packages the company sells The company uses 900 baskets in production each month The cost of making one basket is 4 for direct materials 4 for variable manufacturing overhead 3 for direct labor and 6 for fixed manufacturing overhead The unit cost is based on the monthly production of 900 baskets The company determined that 45 of the fixed manufacturing overhead is avoidable An outside supplier has offered to sell Toby s Treats the baskets for 12 each and can supply all the units it needs Prepare an incremental analysis to determine if the company should buy the baskets from the supplier Calculate the impact on Net Income if 900 baskets were purchased from the outside supplier and indicate whether or not Toby s Treats should make or buy the baskets 3 Bradley Toys produces giant stuffed bears Each bear consists of 13 of variable costs and 9 of fixed costs and sells for 45 A wholesaler offers to buy 8 500 bears from Bradley at 18 each of which Bradley has the capacity to produce If Bradley accepts this special order Bradley will incur extra shipping costs of 2 per bear Determine the incremental income or loss that Bradley Toys would realize by accepting the special order 4 Darby Dairy has four product lines Sour Cream Ice Cream Yogurt and Butter Information related to the company s four product lines is illustrated below for the month of June Units sold Revenue Variable costs Contribution Margin Fixed costs Net income loss Sour Cream 2 000 Ice Cream 500 Yogurt 400 Butter 200 Total 3 100 10 000 6 000 4 000 7 000 3 000 20 000 13 000 7 000 2 000 5 000 10 000 4 200 5 800 3 000 2 800 20 000 4 800 15 200 7 000 8 200 60 000 28 000 32 000 19 000 13 000 Darby is considering dropping the Sour Cream product line Prepare an incremental analysis to show the effect of dropping this product line Based on your analysis should the Sour Cream product line be retained or eliminated and what is the amount of incremental net income or net loss that would result from eliminating the product line 5 Marlow Manufacturing is considering the replacement of a piece of equipment with a newer model The following data has been collected Old Equipment New Equipment Purchase price 225 000 375 000 Accumulated depreciation 90 000 0Annual operating costs 300 000 240 000 If the old equipment is replaced now it can be sold for 60 000 Both the old equipment s remaining useful life and the new equipment s useful life is 5 years Prepare an analysis to determine the incremental net income or loss that would result from replacing the old equipment