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    Exercise Topic 5-2 Questions

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    This document contains two exercises related to short-term decision making. Exercise 1 provides information about a special order received by Ramos Company and requires calculating various costs and revenues to determine if the order should be accepted. Exercise 2 provides information about Oswego Manufacturing Company's production of a part called WISCO and whether it is better to make it in-house or purchase it from a supplier.

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    Exercise Topic 5-2 Questions

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    jr ylvs
    38 views3 pages
    This document contains two exercises related to short-term decision making. Exercise 1 provides information about a special order received by Ramos Company and requires calculating various costs and revenues to determine if the order should be accepted. Exercise 2 provides information about Oswego Manufacturing Company's production of a part called WISCO and whether it is better to make it in-house or purchase it from a supplier.

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    This document contains two exercises related to short-term decision making. Exercise 1 provides information about a special order received by Ramos Company and requires calculating various costs and revenues to determine if the order should be accepted. Exercise 2 provides information about Oswego Manufacturing Company's production of a part called WISCO and whether it is better to make it in-house or purchase it from a supplier.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    38 views3 pages

    Exercise Topic 5-2 Questions

    Uploaded by

    jr ylvs
    This document contains two exercises related to short-term decision making. Exercise 1 provides information about a special order received by Ramos Company and requires calculating various costs and revenues to determine if the order should be accepted. Exercise 2 provides information about Oswego Manufacturing Company's production of a part called WISCO and whether it is better to make it in-house or purchase it from a supplier.

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    BKAM3023 Management Accounting II

    Topic 5: Short Term Decision Making

    Exercise 1

    Ramos Company is currently producing 16,000 units per month, which is 80% of its
    production capacity. Variable manufacturing costs are currently $11.00 per unit. Fixed
    manufacturing costs are $48,000 per month. Ramos pays a 9% sales commission to its
    sales people, has $30,000 in fixed administrative expenses per month, and is averaging
    $320,000 in sales per month.
    A special order received from a foreign company would enable Ramos Company to
    operate at 100% capacity. The foreign company offered to pay 75% of Ramos’s current
    selling price per unit. If the order is accepted, Ramos will have to spend an extra $2.00
    per unit to package the product for overseas shipping. Also, Ramos Company would
    need to lease a new stamping machine to imprint the foreign company’s logo on the
    product, at a monthly cost of $2,500. The special order would require a sales
    commission of $3,000.

    Required:
    (a) Compute the number of units involved in the special order and the foreign
    company’s offered price per unit.
    4000 15
    (b) What is the manufacturing cost of producing one unit of Ramos’s product for
    regular customers?
    14
    (c) Prepare an incremental analysis of the special order. Should management
    accept the order?
    Items RM
    Sales increased 60,000
    (-) Variable MOC (44,000)
    (-) Packaging (8,000)
    (-) Machine (2,500)
    (-) Sales commission (3,000)
    Net Income 2,500

    (d) What is the lowest price that Ramos could accept for the special order to earn
    net income of $1.20 per unit?
    16
    (e) What nonfinancial factors should management consider in making its decision?

    1
    BKAM3023 Management Accounting II

    Exercise 2

    The management of Oswego Manufacturing Company is trying to decide whether to


    continue manufacturing a part or to buy it from an outside supplier. The part, called
    WISCO, is a component of the company’s finished product. The following information
    was collected from the accounting records and production data for the year ending
    December 31, 2013.

    1. 7,000 units of WISCO were produced in the Machining Department.


    2. Variable manufacturing costs applicable to the production of each WISCO unit
    were: direct materials $4.75, direct labor $4.80, indirect labor $0.45, utilities $0.35.
    3. Fixed manufacturing costs applicable to the production of WISCO were:

    Cost Item Direct Allocated


    Depreciation $1,600 $900
    Property taxes $400 $200
    Insurance $900 $600
    $2,900 $1,700
    All variable manufacturing and direct fixed costs will be eliminated if WISCO is
    purchased. Allocated costs will have to be absorbed by other production
    departments.
    4. The lowest quotation for 7,000 WISCO units from a supplier is $77,000.
    5. If WISCO units are purchased, freight and inspection costs would be $0.30 per
    unit, and receiving costs totaling $750 per year would be incurred by the Machining
    Department.

    Required:
    (a) Prepare an incremental analysis for WISCO. Your analysis should have columns
    for (1) Make WISCO, (2) Buy WISCO, and (3) Net Income Increase/Decrease.
    Item Make Buy
    Variable DM 4.75
    DL 4.8
    IDL 0.45
    UTILITIES 0.35
    FIXED OH 1,700
    PURCHASE PRICE 11
    TRANS 0.30
    RECEIVING 750
    TOTAL 1710.35 761.3

    2
    BKAM3023 Management Accounting II

    (b) Based on your analysis, what decision should management make?


    Buy
    (c) Would the decision be different if Oswego Company has the opportunity to
    produce $5,000 of net income with the facilities currently being used to
    manufacture WISCO? Show computations.
    Yes, the company will make WISCO by itself.
    Item Make Buy
    Variable DM 4.75 0
    DL 4.8 0
    IDL 0.45 0
    UTILITIES 0.35 0
    FIXED OH 1,700 0
    PURCHASE PRICE 0 11
    TRANS 0 0.30
    RECEIVING 0 750
    (-) NET INCOME (5,000) 0
    TOTAL (3289.65) 761.3

    (d) What nonfinancial factors should management consider in making its decision?

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