Revision

1. Kava Inc. manufactures industrial components. One of its products, which is used
in the construction of industrial air conditioners, is known as K65. Data concerning
this product are given below:

   

The above per unit data are based on annual production of 4,000 units of the
component. Direct labor can be considered to be a variable cost.

A. The company has received a special, one-time-only order for 500 units of
component K65. There would be no variable selling expense on this special order and
the total fixed manufacturing overhead and fixed selling and administrative expenses
of the company would not be affected by the order. Assuming that Kava has excess
capacity and can fill the order without cutting back on the production of any product,
what is the minimum price per unit on the special order below which the company
should not go? 
B. The company has received a special, one-time-only order for 500 units of
component K65. There would be no variable selling expense on this special order and
the total fixed manufacturing overhead and fixed selling and administrative expenses
of the company would not be affected by the order. However, assume that Kava has
no excess capacity and this special order would require 10 minutes of the constraining
resource, which could be used instead to produce products with a total contribution
margin of $11,000. What is the minimum price per unit on the special order below
which the company should not go? 
C. Refer to the original data in the problem. What is the current contribution margin
per unit for component K65 based on its selling price of $180 and its annual
production of 4,000 units?
2. The management of Thews Corporation is considering dropping product E28I. Data
from the company's accounting system appear below:

   

All fixed expenses of the company are fully allocated to products in the company's
accounting system. Further investigation has revealed that $86,000 of the fixed
manufacturing expenses and $67,000 of the fixed selling and administrative expenses
are avoidable if product E28I is discontinued.

Required:

a. What is the net operating income earned by product E28I according to the
company's accounting system?
3. Hobbins Corporation makes three products that use compound W, the current
constrained resource. Data concerning those products appear below:

 
Rank the products in order of their current profitability from most profitable to least
profitable. In other words, rank the products in the order in which they should be
emphasized. 
4. An automated turning machine is the current constraint at Greenleaf Corporation.
Three products use this constrained resource. Data concerning those products appear
below:

Rank the products in order of their current profitability from most profitable to least
profitable. In other words, rank the products in the order in which they should be
emphasized. 
5. Dilom Farm Supply is located in a small town in the rural west. Data regarding the
store's operations follow:

 Sales are budgeted at $260,000 for November, $230,000 for December, and
$210,000 for January.
 Collections are expected to be 55% in the month of sale, 40% in the month
following the sale, and 5% uncollectible.
 The cost of goods sold is 80% of sales.
 The company purchases 50% of its merchandise in the month prior to the month of
sale and 50% in the month of sale. Payment for merchandise is made in the month
following the purchase.
 Other monthly expenses to be paid in cash are $21,700.
 Monthly depreciation is $17,000.
 Ignore taxes.

A.  Expected cash collections in December are ?

B. The cost of December merchandise purchases would be ?
C. The net income (loss) for December would be ?
D. Show cashflow at the end of December ?
6. Carner Lumber sells lumber and general building supplies to building contractors in
a medium-sized town in Montana. Data regarding the store's operations follow:

 Sales are budgeted at $370,000 for November, $360,000 for December, and
$340,000 for January.
 Collections are expected to be 85% in the month of sale, 13% in the month
following the sale, and 2% uncollectible.
 The cost of goods sold is 70% of sales.
 The company purchases 30% of its merchandise in the month prior to the month of
sale and 70% in the month of sale. Payment for merchandise is made in the month
following the purchase.
 Other monthly expenses to be paid in cash are $24,600.
 Monthly depreciation is $17,000.
 Ignore taxes.

A. The net income for December would be ?

B. The cash balance at the end of December would be ?

7. Ruvolo Jeep Tours operates jeep tours in the heart of the Colorado Rockies. The
company bases its budgets on two measures of activity (i.e., cost drivers), namely
guests and jeeps. One vehicle used in one tour on one day counts as a jeep. Each jeep
has one tour guide. The company uses the following data in its budgeting:

   

In February, the company budgeted for 436 guests and 162 jeeps. The company's
income statement showing the actual results for the month appears below:

   

Required:

Prepare a report showing the company's revenue and spending variances for February.
Label each variance as favorable (F) or unfavorable (U).