9. Analyzing a Keep-or-Drop Decision Sunblocker Corp. is considering eliminating
ID: 2526522 • Letter: 9
Question
9. Analyzing a Keep-or-Drop Decision Sunblocker Corp. is considering eliminating a product from its Happy Sand line of beach umbrellas. This collection is aimed at people who spend time on the beach or have an outdoor patio near the beach. Two products, the Happy Day and Morning Sun umbrellas, have impressive sales. However, sales for another umbrella, the Rolling Surf model, have been dismal. Suwbsckrrs information related to the Happy Sand line follows. Happy Morning Rolling Total Sales Revenue Variable Costs S60,000 $60.000 30,000 S150,00 6,000 9,000 7,000 62,000 Allocatrd Fixi Profit $6,000 S9,000 $3,000) 12,000 Sunblocker has determined that eliminating the Rolling Surf model will cause sales of the Happy Day and the Morning Sun models to increase by 10 percent and 15 percent, respectively. Variable costs for these two models will increase proportionately. Additionally, none of the fixed cost allocated to the Rolling Surf model is avoidable. The fixed overhead currently allocated to the Rolling Surf model will be redistributed to the remaining two products. Required: 1. Detemine what will happen to the company's total profit, if Sunblocker drops the Rolling Surf product What is your recommendation to Sunblocker? 2. Suppose that the full amount of fixed ovehcad allocated to Rolling Surfis avoidable. Would your recommendation to Sunblocker change? Why or why not? 0. Analyzing a Special-Order Decision Woodchuck Corp. makes several varicties of wooden fumiture. It has been approached about producing a special order for rocking chairs. A local senior citizens group would use the special-order chairs in a newiy remodeled activity center. The senior citizens have offered to buy 80 of the Rock-On model chairs at a price of $70 cach. Woodchuck currerly has the excess capacity necessary to accept the offer. A summary of the information related to production of Woodchucks Rock-On model follows Direct materials Direct labor Variable manufacturing Fixed manufacturing overhead Total cost Regular sales price $30 20 12 $73 $99 Required: . What impact would this special order have on Woodchuck's total profit? 2. Should Woodchuck accept the special order? 3. Suppose that the special offer had been to purchase 100 rocking chairs for S65 each. What effect would that offer have on Woodchuck's total profit?Explanation / Answer
Solution 9.1:
Total increase (decrease) in net profit = $11,950 - $12,000 = ($50)
As there is decrease in net profit by $50, therefore Rolling Surf model should not be eliminated.
Solution 9.2:
Total increase (decrease) in net profit = $21,950 - $12,000 = $9,950
As there is Increase in net profit by $9,950, therefore Rolling Surf model be eliminated.
Note: As multiple questions are posted, i have answered first question as per chegg policy. Kindly post separate question for answer of question 10.
Computation of Company profit - After elimination of Rolling Surf Model Particulars Happy day Morning Sun Total Sales $66,000.00 $69,000.00 $135,000.00 Variable cost $37,400.00 $35,650.00 $73,050.00 Contribution $28,600.00 $33,350.00 $61,950.00 Overall fixed cost $50,000.00 Net operating income $11,950.00Related Questions
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