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problems about special order and maximizing profits

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1. Gamboa's Company has a capacity of 50,000 units per year and is currently selling all 50,000 for $500 each. Keller Company has approached Gamboa about buying 5,000 units for only $450 each. Gamboa has a normal variable cost of $380 per unit, including $50 per unit in direct labor. Gamboa could produce the special order on an overtime shift. This would result in direct labor being paid overtime at 150% of the normal pay rate. Additionally, $50,000 in additional fixed costs would be association with the order. What will be the impact on profits of accepting the order?
A. Profits would decrease $350,000
B. Profits would increase $350,000
C. Profits would increase $175,000
D. Profits would increase $225,000.

2 Strait Guitar Company sells a single product. Strait estimates demand and costs at various activity levels as follows:

Units Sold Price Total Variable costs Fixed Costs
120,000 $48 $3,000,000 $1,000,000
140,000 $45 $3,500,000 $1,000,000
160,000 $40 $4,000,000 $1,000,000
180,000 $35 $4,500,000 $1,000,000
200,000 $30 $5,000,000 $1,000,000

What price should Strait charge to maximize profits?
A. $48
B. $45
C. $40
D. $35
E. $30.

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1. Gamboa's Company has a capacity of 50,000 units per year and is currently selling all 50,000 for $500 each. Keller Company has approached Gamboa about buying 5,000 units for only $450 each. Gamboa has a normal variable cost of $380 per unit, including $50 per unit in direct labor. Gamboa could produce the special order on ...

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The solution discusses answers for the problems about special order and maximizing profits.

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Dropinsky Company: Assuming all direct fixed costs of Division Y are avoidable, what would be the change in operating income if Division Y were eliminated?

Please see the attached file for the full problems.

1. The Dropinsky Company's management wants to determine if Division Y should be eliminated. The following data are available (in thousands).

Segmented Income Statement
Division X Division Y Division Z Total
Sales $200 $300 $400 $900
Less variable costs 80 150 160 390
Contribution margin $120 $150 $240 $510
Less direct fixed costs 70 170 120 360
Segment margin $ 50 ($ 20) $120 $150
Less common fixed costs 90
Operating income $ 60

a. Assuming all direct fixed costs of Division Y are avoidable, what would be the change in operating income if Division Y were eliminated?

b. Assuming one-half of the direct fixed costs of Division Y are avoidable, what would be the change in operating income if Division Y were eliminated.

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a. Identify the relevant data in this problem.
b. Prepare an incremental analysis for Courtney to aid her in this decision.
c. What decision should Courtney make?

3. The Big Bear Lumber Company is trying to decide whether to sell or process further rough-sawn lumber.
The joint cost of producing the rough-sawn lumber is $10,500. The following data are available:

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Number of Boards
Selling Price per Board Incremental Cost to Process Further

At Split-Off After Additional Processing
A 2,000 $ 8 $12 $7,000
B 1,000 16 20 6,000
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4.. On November 15, 20xx, The Cooper Co. received a special order for 6,000 three-wood golf club sets. These golf clubs will be marketed in Asia. Seto Imports, Inc., the purchasing company, wants the clubs bulk packaged and is willing to pay $72 per set for the clubs. The president of The Cooper Co. has gathered the following product costing information about the set of woods being discussed: direct materials (wood), $900 per 100 sets; direct materials (metal shafts), $1,200 per 100 sets; and direct materials (grips), $200 per 100 sets. Direct labor is $27 per set. Variable manufacturing costs are $19 per set, and fixed manufacturing costs are 20 percent of direct labor dollars. Variable selling expenses are $14 per set, and variable shipping costs are $9 per set. Fixed general and administrative costs are figured at 30 percent of direct labor dollars. Bulk shipping costs will total $10,000, thus eliminating both variable selling and variable shipping costs from consideration. The company did not expect this order and will reach planned production capacity for the year. However, there is enough plant capacity for the special order. Round answers to two decimal places.

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