EXERCISE 9-6 (a) (1) Decision Net Income Make Buy Increase (Decrease)
Direct materials $800,000 $0 $800,000
Direct labor $600,000 $0 $600,000
Variable overhead $120,000 $0 $120,000
Fixed overhead $200,000 $0 $200,000
Purchase price $1,800,000 ($1,800,000)
Total annual cost $1,720,000 $1,800,000 ($80,000) Accept Offer ?? Yes or No No

(2) Decision Net Income Make Buy Increase (Decrease)
Direct materials $800,000 $800,000
Direct labor $600,000 $600,000
Variable overhead $120,000 $120,000
Fixed overhead $500,000 $500,000
Purchase price $1,800,000 ($1,800,000)
Opportunity cost $300,000 300,000
Totals $2,320,000 $1,800,000 $520,000 Accept Offer ?? Yes or No Yes (b) Qualitative Factors: The qualitative factors in this decision include the possible loss of jobs for employees who produce the robots. In addition, management must assess how well the supplier will be able to satisfy the company’s quality control standards at the quoted price per unit.

EXERCISE 9-11

Decision Net Income Replace Retain Increase Machine Machine (Decrease)
New machine cost $9,000 25,000 ($16,000) 5 year period
Operating costs 24000 18,000 6,000
Salvage value (old) 800 5,000 ($4,200) Total $33,800 $48,000 ($14,200)

Replace ? Why ? Yes, The current machine should be replaced, because the maintaining expenses are comparatively higher then the new machine's maintaining expenses.

PROBLEM 9-1A (a) Decision Net Income Reject Accept Increase Order Order (Decrease)
Revenues ($10,000 X $28) $280,000 $280,000
Cost of goods sold 224000 (1) -224,000
Selling and administrative expenses 25000 (2) -25,000
Net Income $0 $31,000 $31,000 (1) Since fixed costs will not change they are irrelevant. = $3,600,000 - $1,080,000 / 112,500 = $22.40 = $22.4 x 10,000 = $224,000 (2) = ($450,000 - $225,000 / 112,500 ) + $0.50 = $2.50 = $2.5 x 10,000 = $25,000 (b) Accept ? Why? Looking at it from a pure economical standpoint, Pro Sports Inc. would make a profit of $3.10 per unit. So they should accept the order.

(c) Unit Selling Price Additional per unit income = $4.10 - $3.10 = $1 Min. selling price = Old Selling price + Additional income = $28.00 + $1.00 = $29.00 (d) Non-Financial Factors (1)The main problem is that if current buyers find that someone else is getting a lower price, they will want it to. (2) If Pro Sport Inc. is operating at full capacity, it is likely that the special order would be rejected.

PROBLEM 9-5A Division
(a) Division I Division II Sales $250,000.00 $200,000.00 Variable costs COGS $140,000.00 $170,100.00 Selling and administrative $26,000.00 $42,000.00 Total variable expenses $166,000.00 $212,100.00 Contribution margin $84,000.00 $(12,100.00) (b) (1) Net Income Decision Increase Division I Continue Eliminate (Decrease) Contribution margin (above) $84,000 $0 ($84,000) Fixed costs ( Cost of goods sold 60,000 30,000 30000