I Love Casing
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Ex. 24–5 (FIN MAN); Ex. 9–5 (MAN)
The flaw in the decision was the failure to focus on the differential revenues and costs, which indicate that operating income would be reduced by $30,000 if Chil- dren’s Shoes is discontinued. This differential income from sales of Children’s Shoes can be determined as follows:
Differential revenue from annual sales of Children’s Shoes: Revenue from sales ...................................................... $150,000 Differential cost of annual sales of Children’s Shoes:
|Variable cost of goods sold ......................................... |$90,000 | |
|Variable selling and administrative expenses ............ | 30,000 | 120,000 |
Annual differential income from sales of Children’s Shoes ............................................................................. $ 30,000
Ex. 24–6 (FIN MAN); Ex. 9–6 (MAN)
a. Proposal to Manufacture Carrying Case June 5, 2008
Purchase price of carrying case .................................. $68.00 Differential cost to manufacture carrying case: Direct materials.......................................................... $25.00 Direct labor................................................................. 32.00 Variable factory overhead (25% × $32) .................... 8.00 65.00 Cost savings from manufacturing carrying case ....... $ 3.00
b. It would be advisable to manufacture the carrying cases because the cost savings would be $3.00 per unit. Fixed factory overhead is irrelevant, since it will continue whether the carrying cases are purchased or manufactured.
459 This edition is intended for use outside of the U.S. only,
Ex. 24–5 (FIN MAN); Ex. 9–5 (MAN)
The flaw in the decision was the failure to focus on the differential revenues and costs, which indicate that operating income would be reduced by $30,000 if Chil- dren’s Shoes is discontinued. This differential income from sales of Children’s Shoes can be determined as follows:
Differential revenue from annual sales of Children’s Shoes: Revenue from sales ...................................................... $150,000 Differential cost of annual sales of Children’s Shoes:
|Variable cost of goods sold ......................................... |$90,000 | |
|Variable selling and administrative expenses ............ | 30,000 | 120,000 |
Annual differential income from sales of Children’s Shoes ............................................................................. $ 30,000
Ex. 24–6 (FIN MAN); Ex. 9–6 (MAN)
a. Proposal to Manufacture Carrying Case June 5, 2008
Purchase price of carrying case .................................. $68.00 Differential cost to manufacture carrying case: Direct materials.......................................................... $25.00 Direct labor................................................................. 32.00 Variable factory overhead (25% × $32) .................... 8.00 65.00 Cost savings from manufacturing carrying case ....... $ 3.00
b. It would be advisable to manufacture the carrying cases because the cost savings would be $3.00 per unit. Fixed factory overhead is irrelevant, since it will continue whether the carrying cases are purchased or manufactured.
459 This edition is intended for use outside of the U.S. only,