Chapter 13 Homework 13. 1. There are two alternatives: make the component in-house or purchase it externally. 2.

Relevant costs of making the component in-house include direct materials, direct labor, and variable overhead. Relevant costs of purchasing the component externally include the purchase price. 3. It is cheaper (by $9,500) to make the component in-house. 4.Now it is cheaper (by $500) to purchase the component. 14. 1. Relevant costs and benefits of accepting the special order include the sales price of $9, direct materials, direct labor, and variable overhead. No relevant costs or benefits are attached to rejecting the order. 2. Operating income will increase by $34,000 ($1.70 3 20,000 units) if the special order is accepted. 15. 1. The two alternatives are to keep the roofing tile line or to drop it. 2. The relevant benefits and costs of keeping the roofing tile line include sales of $150,000, variable costs of $140,000, advertising cost of $10,000, and supervision cost of $35,000. None of the relevant benefits and costs of keeping the roofing tile line would occur under the drop alternative. 3. The difference is $35,000 in favor of dropping the roofing tile line. 17. 1. Revenue from apples in bags 14 $1.25 3 120 14 $150 2. Revenue from further processing 14 $0:90 3 500 14 $450 Further processing cost 14 $0:24 3 500 14 $120 Income from further processing 14 $450 $120 14 $330 3. Jacks Lumber Yard should process the Grade B apples into pie filling because the company will make $330 versus the $150 it would make by selling the apples in bags. 18. 1. Contribution margin per unit $25.00 $10.00 Required machine time per unit /2 /0.5 Contribution margin per hour of machine time $12.50 $20.00 2. Since Gear Y yields $20 of contribution margin per hour of machine time, all machine time should be devoted to the production of Gear Y. Units Gear Y = 40,000 total hours/0.5 hour per Gear Y = 80,000 units The optimal mix is Gear Y = 80,000 units and Gear X = 0 units. 3. Total contribution margin of optimal mix = (80,000 units Gear Y)$10 = $800,000

31. 1. There are two alternatives: make the component in-house or purchase it externally. 2. Relevant costs of making the component in-house include direct materials, direct labor, and variable overhead. Relevant costs of purchasing the component externally include the purchase price. Alternatives Differential Make Buy Cost to Make Direct Materials 10,000 10,000 Direct Labor 20,000 20,000 Variable Overhead 8,000 8,000 Purchase Cost 47500 (47,500) Total Relevant Cost 38000 47500 (9,500) 3. It is cheaper (by $9,500) to make the component in-house. 4. Alternatives Differential Make Buy Cost to Make Direct Materials 10,000 10,000 Direct Labor 20,000 20,000 Variable Overhead 8,000 8,000 Purchase Cost 10,000 47,500 (10,000) Total Relevant Cost 38,000 47,500 (9,500) 39. 1. The company should accept the order 2. The factors that impact the decision are direct materials, direct labor, variable overhead, available fixed overhead and total relevant cost