Purchase Solution

Differential Analysis and Product Pricing

Not what you're looking for?

Ask Custom Question

23-3

A condensed income statement by product line for Nordic Beverage Inc. indicated the following for Diet Kola for the past year.

Sales $486,000
Cost of Goods Sold 258,000
Gross Profit $228,000
Operating expenses 260,000
Loss from operations $ (32,000)

It is estimated that 20% of the cost of goods sold represents fixed factory over-head costs and that 25% of the operating expenses are fixed. Since Diet Kola is only one of many products, the fixed costs wll not be materially affected if the product is discontinued.

a. Prepare a differential analysis report, dated January 3, 2006 for the proposed discontinuance of the Diet Kola.
b. Should diet Kola be retained? Explain

23-6

Advent Computer Company has been purchasing carrying cases for its portable computers ata delivered cost of $51 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 40% of direct labor cost. The fully absorbed unit costs to produce comparable carrying cases are expected to be:

Direct materials $20.00
Direct Labor 24.00
Factory overhead (40% of direct labor) 9.60
Total cost per unit $53.60

If Advent Computer Company manufactures the carrying cases, fixed factory overhead costs will not increase and variable factory overhead costs associated with the cases are expected to be 25% of the direct labor costs.

a. Prepare a differential analysis report, dated June 5, 2006, for the make-or-buy decision.
b. On the basis of the data presented, would it be advisable to make the carrying cases or to continue buying them? Explain

Purchase this Solution

Solution Summary

Excel file contains a differential analysis report for the proposed discontinuance of the product.

Purchase this Solution


Free BrainMass Quizzes
Understanding the Accounting Equation

These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.

Organizational Behavior (OB)

The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.

Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.

Learning Lean

This quiz will help you understand the basic concepts of Lean.

Marketing Research and Forecasting

The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.