Homework 5
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 |
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