Differential analysis the key to decision making

7/10/2019 Chapter 7 HW Saeed Alameri ACCT 285: SUMMER 2019 - ONLINE Chapter 7 HW 1. instructions | help value: 2.00 points Bed & Bath, a retailing company, has two departments, Hardware and Linens. The company’s most recent monthly contribution format income statement follows: Sales Variable expenses Contribution margin Fixed expenses Total $ 4,300,000 1,242,000 3,058,000 2,360,000 Department Hardware Linens $3,100,000 $ 1,200,000 841,000 401,000 2,259,000 799,000 1,490,000 870,000 Net operating income (loss) $ $ 769,000 698,000 $ (71,000) A study indicates that $380,000 of the fixed expenses being charged to Linens are sunk costs or allocated costs that will continue even if the Linens Department is dropped. In addition, the elimination of the Linens Department will result in a 17% decrease in the sales of the Hardware Department. Required: If the Linens Department is dropped, what will be the effect on the net operating income of the company as a whole? https://ezto.mheducation.com/hm.tpx 1/2 7/10/2019 Chapter 7 HW in net operating income References Worksheet eBook & Resources Difficulty: 1 Easy Learning Objective: 07-02 Prepare an analysis showing whether a product line or other business segment should be added or dropped. Check my work ©2019 McGraw-Hill Education. All rights reserved. https://ezto.mheducation.com/hm.tpx 2/2 7/10/2019 Chapter 7 HW ACCT 285: SUMMER 2019 - ONLINE Chapter 7 HW 2. Saeed Alameri instructions | help value: 2.00 points Han Products manufactures 27,000 units of part S-6 each year for use on its production line. At this level of activity, the cost per unit for part S-6 is: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost per part $ 4.80 8.00 2.30 9.00 $ 24.10 An outside supplier has offered to sell 27,000 units of part S-6 each year to Han Products for $44.00 per part. If Han Products accepts this offer, the facilities now being used to manufacture part S-6 could be rented to another company at an annual rental of $696,300. However, Han Products has determined that two-thirds of the fixed manufacturing overhead being applied to part S-6 would continue even if part S-6 were purchased from the outside supplier. Required: 1. Calculate the per unit and total relevant cost for buying and making the product.