Author: Joyce Buda


Lancaster Lighting Corp. produces a model of outdoor floodlight that normally sells for $15 per light. Sales per year are 500,000 units, and the production line is operating at 70% capacity. Lancaster has been presented with a special one-time export order for 40,000 lights at $11 per light. The $11 price is below the current total cost of production. Listed below are the costs based on the production of 500,000 units. There would be no increase in fixed costs by accepting this order, but there would be a one-time crating expense of $5,000. The special order would have no effect on the existing business because it is being exported to a market that Lancaster does not normally serve. Prepare an incremental analysis and determine the effect of accepting the special order. Should Lancaster accept this order?Costs at 500,000 units of production:Direct laborDirect materialsVariable manufacturing overheadFixed manufacturing overheadTotal manufacturing costANALYSIS:2,500,0001,750,000625,0001,250,0006,125,000 Make-Versus-Buy DecisionSports Equipment Unlimited makes and sells soccer goals and has sales of 20,000 units per year. The plant is operating at full capacity.A potential supplier has approached Sports Equipment Unlimited and offered to supply the soccer goals at a finished cost of $31.50per goal. If the company buys rather than manufactures, they will be able to eliminate 60% of fixed manufacturing costs by leasingunused space. The current costs are as follows:Per UnitDirect labor200,00010.00Direct materials247,00012.35Variable manufacturing overhead60,0003.00Fixed manufacturing overhead170,0008.50Total manufacturing cost677,00033.85INSTRUCTIONS:Prepare an incremental analysis for the decisions to make or buy the soccer goals.Show the cost of continuing to make and to buy the goals. Show the effect on netincome if they buy. Should Sports Equipment Unlimited buy the goals? Cash BudgetBelow is summary monthly income statement data for Ace Manufacturing Company.Sales revenueDirect materials purchasesDirect laborManufacturing overheadSelling and administrative expensesJanuary250,00060,00088,00050,00045,000February275,00070,00095,00052,00046,000All sales are on account, and history has shown that 40% of sales is expected to be collected in the month of the sale, with 60% collected the following month.Direct materials are paid 50% in the month of purchase and 50% the following month. All other expenses are paid as incurred. All costs shown are cash-based costs (depreciation has already been eliminated).Other data:1. December sales were $230,000.2. Purchases of direct materials purchased in December were $50,000.3. The company has interest payments due of $5,000 per month.4. The cash balance on January 1 was $15,000.InstructionsA. Prepare schedules for expected collections from customers and expected payments for direct materials purchases.B. Prepare a cash budget for January and February.

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