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# Relevant profit, differential analysis, Split-off point

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#1. The Aluminum Can Company has 200,000 obsolete cans in inventory at a cost of \$10,000. The cans can be cut in half to make candle holders for \$2,000. The candle holders can be sold for \$3,500 in total. If the cans are scrapped, they could be sold for \$900.
Which alternative should the Aluminum Can Company accept and what is the relevant profit from the alternative?

#2. Cari manufactures a unit called Y2. Variable manufacturing costs per unit of Y2 are as follows:
Direct materials \$2
Direct labor \$20
Variable manufacturing overhead \$10
The Nick Company has offered to sell Cari 10,000 units of Y2 for \$44 per unit. If Cari accepts the offer, \$140,000 of fixed manufacturing overhead will be eliminated.
Applying differential analysis to the situation, what should Cari do?

#3. Northern Production Company has 200 labor-hours available. There is no limit on machine-hours. Northern can sell all of Y it wants, but it can only sell 45 units and 20 units of X and Z, respectively.
Product X Y Z
Contribution margin per unit \$30 \$20 \$24
Labor-hours per unit 4 5 4
Machine-hours per unit 10 8 2
What is the contribution margin per labor-hour for product Y?

#4. The Kirsten Company uses a joint process to produce products A, B, C, and D. Each product may be sold at its split-off point or processed further. Joint processing costs for a single batch of joint products are \$65,000. Other relevant data are found in the attachment.
Calculate the effect on profits of processing Product A further beyond the split-off point.

#5. A limitation of 3,000 machine-hours per week prevents Manhattan Manufacturing Company from meeting the sales demands for its products. The product information is found in the attachment.

Assuming unlimited demand for each product, determine what is the best short-run profit maximizing strategy?

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#### Solution Summary

Your guidance on differential analysis, contribution margin, and effects on profit is attached and has instructional notes to follow the work.

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