The original questions are (i\'ve already completed them)... how that might chan

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The original questions are (i've already completed them)...

how that might change your conclusion in (a).

I need help with the part below!

CD7 EXCEL Tutorial CURRENT DESIGNS Current Designs faces a number of important decisions that require incremental analysis. Consider each of the following situations independently. Situation 1 Recently, Mike Cichanowski, owner and CEO of Current Designs, received a phone call from the president of a brewing company. He was calling to inquire about the possibility of Current Designs producing "floating coolers" for a promotion his company was planning. These coolers resemble a kayak but are about one-third the size. They are used to float food and beverages while paddling down the river on a weekend leisure trip. The company would be interest in purchasing 100 coolers for the upcoming summer. It is willing to pay $250 per cooler. The brewing company would pick up the coolers upon completion of the order.      Mike met with Diane Buswell, controller, to identify how much it would cost Current Designs to produce the coolers. After careful analysis, the following costs were identified. Direct materials $80/unit Variable overhead $20/unit Direct labor $60/unit Fixed overhead $1,000 Current Designs would be able to modify an existing mold to produce the coolers. The cost of these modifications would be approximately $2,000. Instructions (a) Prepare an incremental analysis to determine whether Current Designs should accept this special order to produce the coolers. (b) Discuss additonal factors that Mike and Diane should consider if Current Designs is currently operating at full capacity. Situation 2 Current Designs is always working to identify ways to increase efficiency while becoming more environmentally conscious. During a recent brainstorming session, one employee suggested to Diane Buswell, controller, that the company should consider replacing the current rotomold oven as a way to realize savings from reduced energy consumption. The oven operates on natural gas, using 17,000 therms of natural gas for an entire year. A new, energy-efficient rotomold oven would operate on 15,000 therms of natural gas for an entire year. After seeking out price quotes from a few suppliers, Diane determined that it would cost approximately $250,000 to purchase a new, energy-efficient rotomold oven. She determines that the expected useful life of the new oven would be 10 years, and it would have no salvage value at the end of its useful life. Current Designs would be able to sell the current oven for $10,000 Instructions (a) Prepare an incremental analysis to determine if Current Designs should purchase the new rotomold oven, assuming that the average price for natural gas over the next 10 years will be $0.65 per therm. (b) Diane is concerned that natural gas prices might increase at a faster rate over the next 10 years. If the company projects that the average natural gas price of the next 10 years could be as high as $0.85 per therm, discuss

how that might change your conclusion in (a).

I need help with the part below!

After you have completed CD7, consider the following additional questions. 1. Assume in situation 1, the unit selling price changed to $195, fixed overhead changed to $1,800 and the cost of modifications changed to $3,000. Show the impact of these changes on decision to accept or reject the special order. 2. Assume in situation 2, the purchase price of the new oven changed to $100,000. Would this change the decision to retain or replace the oven? 3. Assume in situation 3, that the estimated number of seats to be produced changed to 3,500 and the cost to purchase one seat from an outside supplier changed to $55. Should Current Designs make or buy the seats?

Explanation / Answer

Situation 1

a)

b) If the company is running at full capacity, in that case the net profit made from the making and selling of 100 coolers should be compared with the profit foregone from the products, the production of which has been stopped to produce these 100 coolers. The reason is, as the company is running at full capacity, therefore some of the existing production must be stopped to allocate the capacity so released to the production of 100 units of coolers.

Situation 2

a)

Decision: The new oven should not be purchased

b)

The decision will not change. The loss will reduce from $227000 to $223000 as shown by the following calculation.

SECOND PART

1)

There will be an incremental loss of $1300 for accepting the offer. The offer should be rejected.

2)

Even if the cst of the new oven is reduced to $100000, then als the decision to purchase new oven should not be made because of an incremental loss of $77000.

Cost of production Direct material per unit $         80.00 Direct labour per unit $         60.00 Variable overhead per unit $         20.00 Total unit variable cost $       160.00 Number of coolers to be produced $       100.00 Total variable cost (100 x $160) $ 16,000.00 Fixed cost $   1,000.00 Cost of modification of mold $   2,000.00 Total cost for 100 coolers $ 19,000.00 Incremental Analysis Increamental revenue from the sale of 100 units @$250 per unit $ 25,000.00 Less: Increamental cost of accepting the offer $ 19,000.00 Incremental Saving $   6,000.00

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