Ellym Co specializes in two products records and cassetles. The company rece inc

Question

Ellym Co specializes in two products records and cassetles. The company rece income last year of recorded a net operating las ye f $0,000, nd provided the following information from last year using its products Product. Recerds Cassettes 300,000 $500,000 as segments sales 80% Variable expense as a percentage o $30,000$80.000 Segment margin What were the total fixed expenses for Ellyn Co. last year? A. $50,000 B. $180,000 C. $200,000 D. $150,000 E. $220,000 15. Part A42 is used by Elgin Corporation to make one of its products. A total of 16,000 units of this part are produced and used every year. The company's Accounting Department reports the following costs of producing the part ac this level of activity Per Unit $7.50 Direct materials Direct labor Variable manufacturing overhead .. $5.50 Supervisor's salary. $8.90 $5.60 Depreciation of special equipment.. Allocated general overhead $8.00 $5.30 An outside supplier has offered to make the part and sell it to the company for $30.40 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including the direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company, none of which would be avoided if the part were purchased instead of produced internally. In addition, the space used to make part A42 could be used to make more of one of the company's other products generating an additional segment margin of $23,000 per year for that product. What would be the impact on the company's overall net operating income of buying part A42 from the outside supplier? A. Net operating income would decrease by $143,400 per year. B. Net operating income would increase by $23,000 per year. C. Net operating income would decrease by $189,400 per year. D. Net operating income would decrease by $23,400 per year E. None of the above.

Explanation / Answer

14. Ellyn Co.

Answer: Option B. $180,000

Traceable fixed expenses = Contribution margin - Segment margin

Common fixed expenses = Total segment margin - Net operating income

Total fixed expenses = Traceable fixed expenses + Common fixed expenses = $150000 + $30000 = $180000

Please post independent questions separately. Thank you.

Product Records Cassettes Total Sales $ 300000 500000 Variable expense as a percentage of sales 80% 60% Variable expense $ 240000 300000 Contribution margin 60000 200000 260000 Traceable fixed expenses 30000 120000 150000 Segment margin 30000 80000 110000 Common fixed expenses 30000 Net operating income 80000

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