homework 5 497422

Homework 5

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homework 5 497422

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1.Ingham Inc. has the capacity to produce 10,000 fax machines per year. Ingham currently produces and sells 7,000 units per year. The fax machines normally sell for $100 each. Modem Products has offered to buy 2,000 fax machines from Ingham for $60 each. Unit-level costs associated with manufacturing the fax machines are $15 each for direct labor and $40 each for direct materials. Product-level and facility-sustaining costs are $50,000 and $65,000, respectively.

Required:

a)What is Ingham’s current net income?

b) Should Ingham accept the special offer?

2. Based on the segment income statement below, Sorbet is considering eliminating its Mangoline.

Revenue from Mangosales	$500,000
Salaries for Mangoworkers	(100,000)
Direct material	(300,000)
Sunk costs (equipment depreciation)	(75,000)
Allocated company-wide facility-sustaining costs	(50,000)
Net loss	$ (25,000)

Required:

Identify each cost as being relevant or not relevant in this decision.

	Relevant	Not Relevant
Revenue from Mangosales
Salaries for Mangoworkers
Direct material
Sunk costs (equipment depreciation)
Allocated company-wide facility-sustaining costs