D. Lawrance Designs and Manufactures Fashionable

D. Lawrance Designs and Manufactures Fashionable in $11 only

D. Lawrance designs and manufactures fashionable men’s clothing. For the coming year, the company has scheduled production of 40,00

Unit Costs              Total
Variable manufacturing costs          $50                   $2,000,000
Variable selling expenses                    20                        800,000
Fixed manufacturing costs                  10                        400,000
Fixed operating expenses                       5                       200,000
Total costs and expenses                    $85                 $3,400,000

The management of D. Lawrance is considering a special order from Discount Apparel for an additional 10,000 jackets. These jackets wou Although D. Lawrance regularly sells its jackets to retail stores at a price of $150 each, Discount Apparel has offered to pay only $80 pe

Instructions
a. Using incremental revenue and incremental costs, compute the expected effect of accepting this special order on D. Lawrance

Expected?_______________
In operating Income?
____________

Easyuse Tool Co. manufactures an electric motor that it uses in several of its products. Management is considering whether to

1 The company needs 12,000 motors per year. The motors can be purchased from an outside supplier at a cost of $2
2 The unit cost of manufacturing the motors is $35, computed as follows:

Direct materials$96,000
Direct labor120,000
Factory overhead:
    Variable90,000
     Fixed114,000
Total manufacturing costs$420,000
Cost per unit(in $)($420,000 ÷ 12,000 units) = $35

3 Discontinuing the manufacture of motors will eliminate all the raw materials and direct labor costs but will eliminate
4 If the motors are purchased from an outside source, machinery used in the production of motors will be sold at its bo
Instructions
a-1.
Prepare a schedule to determine the incremental cost or benefit of buying the motors from the outside supplier.
a-2.
Would you recommend t
Make the motors
Buy the motors
b-1.
Assume that if the motors are purchased from the outside source, the factory space previously used to produce mot
b-2.
Would this new assump
Yes
No
Kelp Company produces three joint products from seaweed. At the split-off point, three basic products emerge: Sea Tea, Sea P
Sales Value and Additional
Costs If Processed Further
Pounds
Product Produced
Sea Tea 9,000
Sea Paste4,000
Sea Powder
2,000
Final SalesAdditional
Sales Value
Value
Cost
$ 60,000 $ 90,000 $ 35,000
80,000 160,000 50,000
70,000 85,000 14,000
Instructions
a-1.
Compute the incremental benefit (cost) of further processing to these products. (Negative amounts should be sho
a-2.
Which products should
Sea tea and sea paste
Sea tea and sea powder
Sea paste and sea powder
b.
At what price per pound would it be advantageous for Kelp Company to sell Sea Paste at the split-off point rather th
000 suede jackets. Budgeted costs for this product are as follows:

would carry the Discount Apparel label, rather than the D. Lawrance label. In all other respects, they would be identical to the regular D. Law per jacket. However, because no sales commissions would be involved with this special order, D. Lawrance will incur variable selling expe
ce’s operating income.

to continue manufacturing the motors or to buy them from an outside source. The following information is available:
$21 per unit.

te only 75 percent of the variable factory overhead costs.
s book value. Accordingly, no gain or loss will be recognized. The sale of this machinery would also eliminate $6,000 in fixed costs associat

motors can be used to manufacture an additional 4,000 power trimmers per year. Power trimmers have an estimated contribution margin of

a Paste, and Sea Powder. Each of these products can either be sold at the split-off point or be processed further. If they are processed furth

shown with a minus sign.)

than process it further? (Round your intermediate calculations and final answer to 2 decimal places.)
Lawrance jackets.
xpenses of only $5 per unit on these sales, rather than the $20 it normally incurs. Accepting the order would cause no change in the compa
iated with depreciation and taxes. No other reductions in fixed factory overhead will result from discontinuing the production of motors.
of $8 per unit. The manufacture of the additional power trimmers would have no effect on fixed factory overhead.
urther, the resulting products can be sold as delicacies to health food stores. Cost and revenue information is as follows:
mpany’s fixed manufacturing costs or fixed operating costs. D. Lawrance has enough plant capacity to produce 55,000 jackets per year.

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