Jackson County Senior Services is a nonprofit organization devoted to providing essential services to
seniors who live in their own homes within the Jackson County area. Three services are provided for
seniors-home nursing, Meals On Wheels, and housekeeping. Data on revenue and expenses for the
past year follow:
Program administrators' salaries
General administrative overhead*
Total fixed expenses
Net operating income (loss)
*Allocated on the basis of program revenues.
The head administrator of Jackson County Senior Services, Judith Miyama, is concerned about the
organization's finances and considers the net operating income of $56,300 last year to be too small. (Last
year's results were very similar to the results for previous years and are representative of what would be
expected in the future.) Therefore, she has asked for more information about the financial advisability of
discontinuing the housekeeping program.
The depreciation in housekeeping is for a van that transports housekeepers and their equipment from
job to job. If the program were discontinued, the van would be donated to a charitable organization.
Depreciation charges assume zero salvage value. None of the general administrative overhead would be
avoided if the housekeeping program were dropped, but the liability insurance and the salary of the
program administrator would be avoided.
1a. What is the impact on net operating income by discontinuing housekeeping program? (Input the
amount as a positive value.)
(Click to select)
in net operating income by
1b. Should the housekeeping program be discontinued?
2. Would a segmented income statement format be more useful to management in assessing the long-
run financial viability of the various services.
Climate-Control, Inc., manufactures a variety of heating and air-conditioning units. The company
currently manufacturing all of its own component parts. An outside supplier has offered to sell a
thermostat to Climate-Control for $43 per unit. To evaluate this offer, Climate-Control, Inc., has gathered
the following information relating to its own cost of producing the thermostat internally:
Units per year
Variable manufacturing overhead
Fixed manufacturing overhead, traceable
Fixed manufacturing overhead, common, but
*40% supervisory salaries; 60% depreciation of special equipment (no resale value).
1a. Assuming that the company has no alternative use for the facilities now being used to produce the
thermostat, compute the total cost of making and buying the parts. (Round your Fixed
manufacturing overhead per unit rate to nearest dollar amount.)
Total relevant cost (15,500
1b. Should the outside supplier's offer be accepted?
2a. Suppose that if the thermostats were purchased, Climate-Control, Inc., could use the freed capacity
to launch a new product. The segment margin of the new product would be $169,000 per year.
Compute the total cost of making and buying the parts. (Round your Fixed manufacturing
overhead per unit rate to nearest dollar amount.)
Total relevant cost (15,500
2b. Should Climate-Control, Inc., accept the offer to buy the thermostats from the outside supplier for $43
Miyamoto Jewelers is considering a special order for 21 handcrafted gold bracelets to be given as gifts to
members of a wedding party. The normal selling price of a gold bracelet is $405 and its unit product cost
is $256 as shown below:
Unit product cost
Most of the manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced
in any given period. However, $10 of the overhead is variable with respect to the number of bracelets
produced. The customer who is interested in the special bracelet order would like special filigree applied
to the bracelets. This filigree would require additional materials costing $9 per bracelet and would also
require acquisition of a special tool costing $462 that would have no other use once the special order is
completed. This order would have no effect on the company's regular sales and the order could be fulfilled
using the company's existing capacity without affecting any other order.
a. What effect would accepting this order have on the company's net operating income if a special price
of $365 is offered per bracelet for this order? (Input the amount as a positive value.)
Net operating income (Click to select)
b. Should the special order be accepted at this price?
Sport Luggage Inc. makes high-end hard-sided luggage for sports equipment. Data concerning three
the company's most popular models appear below.
Selling price per unit
Variable cost per unit
Plastic injection molding machine processing
time required to produce one unit
5 minutes 9 minutes
Pounds of plastic pellets per unit
14 pounds 8 pounds
1a. The total time available on the plastic injection molding machine is the constraint in the production
process. What is contribution margin per unit of the constrained resources for Ski Vault, Golf Caddy
and Fishing Quiver? (Round your answers to 2 decimal places.)
1b. Which product would be the most profitable use of this constraint?
1c. Which product would be the least profitable use of this constraint?
2a. A severe shortage of plastic pellets has required the company to cut back its production so much that
the plastic injection molding machine is no longer the bottleneck. Instead, the constraint is the total
available pounds of plastic pellets. What is contribution margin per unit of the constrained resources
for Ski Vault, Golf Caddy and Fishing Quiver? (Round your answers to 2 decimal places.)
2b. Which product would be the most profitable use of this constraint?
2c. Which product would be the least profitable use of this constraint?
Renfree Mines, Inc., owns the mining rights to a large tract of land in a mountainous area. The tract
contains a mineral deposit that the company believes might be commercially attractive to mine and sell.
An engineering and cost analysis has been made, and it is expected that the following cash flows would
be associated with opening and operating a mine in the area:
Cost of equipment required
Annual net cash receipts
Working capital required
Cost of road repairs in ten years
Salvage value of equipment in eleven years
*Receipts from sales of ore, less out-of-pocket costs for salaries, utilities, insurance, and so forth.
The mineral deposit would be exhausted after eleven years of mining. At that point, the working capital
would be released for reinvestment elsewhere. The company's required rate of return is 19% (Ignore
Click here to view Exhibit 11B-1 and Exhibit 11B-2. to determine the appropriate discount factor(s) using
a. Determine the net present value of the proposed mining project. (Negative amount should be
indicated by a minus sign. Round discount factor(s) to 3 decimal places, other intermediate
calculations and final answer to the nearest whole dollar.)
Net present value
b. Should the project be accepted?
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