Refer to the information presented in the preceding exercise. Assume that Video Avenue can avoid $39,000 of direct fixed costs by dropping the DVD product line. Prepare a differential analysis to show whether Video Avenue should stop selling DVDs.

Eclipse Systems manufactures an optical switch that it uses in its final product. The switch has the following manufacturing costs per unit:

$$\begin{array}{lr} \hline \text{Direct Materials} & \$ 11.00 \\ \text{Direct Labor} & 4.50 \\ \text{Variable Overhead} & 6.00 \\ \text{Fixed Overhead} & 8.00 \\ \hline \text{Manufacturing Product Cost} & \$ 29.50 \\ \hline \end{array}$$

Another company has offered to sell Eclipse Systems the switch for $20.00 per unit. If Eclipse Systems buys the switch from the outside supplier, the idle manufacturing facilities cannot be used for any other purpose, yet none of the fixed costs are avoidable.

Eclipse Systems needs 80,000 optical switches. By outsourcing them, Eclipse Systems can use its idle facilities to manufacture another product that will contribute$ 250,000 to operating income.

Requirements

1. Identify the expected net costs that Eclipse Systems will incur to acquire 80,000 switches under three alternative plans.
2. Which plan makes the best use of Eclipse System's facilities? Support your answer.

Refer to the information presented in the preceding exercise. Cool Systems needs 79,000 optical switches. By outsourcing them, Cool Systems can use its idle facilities to manufacture another product that will contribute $225,000 to operating income.

Requirements

1. Identify the expected net costs that Cool Systems will incur to acquire 79,000 switches under three alternative plans: make the switches, buy the switches and leave facilities idle, buy the switches, and use the idle facilities to make another product.
2. Which plan makes the best use of Cool System's facilities? Support your answer.

Eclipse Systems manufactures an optical switch that it uses in its final product. The switch has the following manufacturing costs per unit:

$$\begin{array}{lr} \hline \text{Direct Materials} & \$ 11.00 \\ \text{Direct Labor} & 4.50 \\ \text{Variable Overhead} & 6.00 \\ \text{Fixed Overhead} & 8.00 \\ \hline \text{Manufacturing Product Cost} & \$ 29.50 \\ \hline \end{array}$$

Another company has offered to sell Eclipse Systems the switch for $ 20.00 per unit. If Eclipse Systems buys the switch from the outside supplier, the idle manufacturing facilities cannot be used for any other purpose, yet none of the fixed costs are avoidable.

Prepare an outsourcing analysis to determine whether Eclipse Systems should make or buy the switch.

Tread Mile produces two types of exercise treadmills: regular and deluxe. The exercise craze is such that Tread Mile could use all its available machine hours to produce either model. The two models are processed through the same production departments. Data for both models are as follows:

$$\begin{array}{lrr} &\textbf{Deluxe}&\textbf{Regular}\\ \text{Sales Price}&\$1,040&\$570\\ \text{Costs:}\\ \text{Direct Materials}&300&90\\ \text{Direct Labor}&78&190\\ \text{Variable Manufacturing Overhead }&276&92\\ \text{Fixed Manufacturing Overhead*}&120&40\\ \text{Variable Operating Expenses }&&\\ \hline\text{Total Costs}&115&67\\ \hline\text{Operating Income}&889&479\\\hline\hline \end{array}$$

*allocated on the basis of machine hours

Requirements

1. What is the constraint?
2. Which model should Tread Mile produce? (Hint: Use the allocation of fixed manufacturing overhead to determine the proportion of machine hours used by each product.)
3. IfTread Mile should produce both models, compute the mix that will maximize operatng income.

Each morning, Joel Rowe stocks the drink case at Joel's Beach Hut in Myrtle Beach, South Carolina. The drink case has 100 linear feet of refrigerated drink space. Each linear foot can hold either six 12-ounce cans or three 20-ounce bottles.

Joel's Beach Hut sells three types of cold drinks:

1. Licious-Ade in 12-oz. cans for $1.30 per can
2. Licious-Ade in 20-oz. bottles for$ 1.70 per bottle
3. Pep-Cola in 20-oz. bottles for $2.30 per bottle Joel's Beach Hut pays its suppliers: 1.$ 0.45 per 12-oz. can of Licious-Ade
4. $0.60 per 20-oz. bottle of Licious-Ade 3.$ 0.90 per 20 -oz. bottle of Pep-Cola

Joel's Beach Hut's monthly fixed costs include:

$$\begin{array}{lr} \hline \text{Hut rental} & \$ 385 \\ \text{Refrigerator rental} & 75 \\ \text{Joel's salary} & 1,650 \\ \text{Total fixed costs} & \$ 2,110 \\ \hline \end{array}$$

Joel's Beach Hut can sell all the drinks stocked in the display case each morning. Requirements

1. What is Joel's Beach Hut's constraining factor? What should Joel stock to maximize profits?
2. Suppose Joel's Beach Hut refuses to devote more than 65 linear feet to any individual product. Under this condition, how many linear feet of each drink should Joel's stock? How many units of each product will be available for sale each day?

Cole sells both designer and moderately priced fashion accessories. Top management is deciding which product line to emphasize. Accountants have provided the following data:

$$\begin{array}{lrr} &\textbf{Designer}&\textbf{Priced}\\ \text{Average Sales Price}&\$195&\$79\\ \text{Average Variable Costs }&85&21\\ \hline\text{Average Contribution Margin }&110&58\\ \text{Average Fixed Costs (allocated)}&20&5\\ \hline\text{Average Operating Income}&90&53\\\hline\hline \end{array}$$

The Cole store in Grand Junction, Colorado, has 13,000 square feet of floor space. If Cole emphasizes moderately priced goods, it can display 780 items in the store. If Cole emphasizes designer wear, it can display only 520 designer items. These numbers are also the average monthly sales in units.

Prepare an analysis to show which product the company should emphasize.

Refer to the facts in the previous exercise. Mel suddenly finds an opportunity to sell boxed dinners . The new opportunity would require the use of the 30 percent unused capacity. The contribution margin from the dinners would amount to $3,000 annually.

Required
Explain why your advice in the previous exercise would or would not now change.

An architect is designing a new windmill with four sails. In her sketch, the sails' center of rotation is the origin, (0,0), and the tip of one of the sails, point Q, has coordinates (2,-3). She wants to make another sketch that shows the windmill after the sails have rotated $270^{\circ}$ about their center of rotation. What would be the coordinates of $Q^{\prime}$ ?

Incremental costs should be considered in a make-or-buy decision.

A. True

B. False

ClearView Company calculates a fixed overhead rate based on budgeted fixed overhead of $180,000 and budgeted production of 600,000 units. Actual results were as follows:$

$$\begin{array}{lr}\text { Number of units produced and sold } & 625,000 \\ \text { Actual fixed overhead } & \$ 195,000\end{array}$$

$

Required: Calculate the following for ClearView:

1. Fixed overhead rate based on budgeted production.
2. Fixed overhead spending variance.
3. Fixed overhead volume variance.
4. Over- or underapplied fixed overhead.

Slim Shady Company (SSC) in an earlier exercise calculates a fixed overhead rate based on a budgeted fixed overhead of $30,000 and budgeted production of 24,000 units. Actual results were as follows:$

$$\begin{array}{lr}\text { Number of units produced and sold } & 25,000 \\ \text { Actual fixed overhead } & \$ 29,000\end{array}$$

$

Required: Calculate the following for SSC:

1. Fixed overhead rate based on budgeted production.
2. Fixed overhead spending variance.
3. Fixed overhead volume variance.
4. Over- or underapplied fixed overhead.

A museum charges $40 for a group of 10 or fewer people. A group of more than 10 people must, in addition to the$40, pay $2 per person for the number of people above 10. For example, a group of 12 pays$44 and a group of 15 pays $50. The maximum group size is 50.

(a) Draw a graph that represents this situation.

(b) What are the domain and range of the cost function?

New York state income tax is based on taxable income, which is part of a person's total income. The tax owed to the state is calculated using the taxable income (not total income). In 2009, for a single person with a taxable income between $20,000 and$200,000, the tax owed was $973 plus 6.85% of the taxable income over$20,000.

(a) Compute the tax owed by a lawyer whose taxable income is $68,000.

(b) Consider a lawyer whose taxable income is 80% of her total income,$x, where x is between $85,000 and$120,000. Write a formula for T(x), the taxable income.

(c) Write a formula for L(x), the amount of tax owed by the lawyer in part (b).

(d) Use L(x) to evaluate the tax liability for x=85,000 and compare your results to part (a).