Question

1.

Lease or Sell

Bullwinkle Company owns a equipment with a cost of $363,500 and accumulated depreciation of $53,600 that can be sold for $274,400, less a 5% sales commission. Alternatively, Bullwinkle Company can lease the equipment to another company for three years for a total of $284,800, at the end of which there is no residual value. In addition, the repair, insurance, and property tax expense that would be incurred by Bullwinkle Company on the equipment would total $15,200 over the three years.

Prepare a differential analysis on March 23 as to whether Bullwinkle Company should lease (Alternative 1) or sell (Alternative 2) the equipment. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Differential Analysis
Lease Equipment (Alt. 1) or Sell Equipment (Alt. 2)
March 23
	Lease Equipment (Alternative 1)	Sell Equipment (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues	$	$	$
Costs
Income (Loss)	$	$

Should Bullwinkle Company lease (Alternative 1) or sell (Alternative 2) the equipment?

2.

Discontinue a Segment

Product T has revenue of $194,600, variable cost of goods sold of $114,600, variable selling expenses of $33,500, and fixed costs of $59,200, creating a loss from operations of $12,700.

Prepare a differential analysis as of May 9, to determine whether Product T should be continued (Alternative 1) or discontinued (Alternative 2), assuming fixed costs are unaffected by the decision. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Differential Analysis
Continue Product T (Alt. 1) or Discontinue Product T (Alt. 2)
May 9
	Continue Product T (Alternative 1)	Discontinue Product T (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues	$	$	$
Costs:
Variable cost of goods sold
Variable selling expenses
Fixed costs
Income (Loss)	$	$	$

Determine if Product T should be continued (Alternative 1) or discontinued (Alternative 2).

3.

Make or Buy

A restaurant bakes its own bread for a cost of $148 per unit (100 loaves), including fixed costs of $34 per unit. A proposal is offered to purchase bread from an outside source for $97 per unit, plus $11 per unit for delivery.

Prepare a differential analysis dated July 7 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the bread, assuming that fixed costs are unaffected by the decision. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Differential Analysis
Make Bread (Alt. 1) or Buy Bread (Alt. 2)
July 7
	Make Bread (Alternative 1)	Buy Bread (Alternative 2)	Differential Effect on Income (Alternative 2)
Sales price	$0	$0	$0
Unit Costs:
Purchase price	$	$	$
Delivery
Variable costs
Fixed factory overhead
Income (Loss)	$	$	$

Determine whether the company should make (Alternative 1) or buy (Alternative 2) the bread.

Answer 1

Answer-1:

Differential Analysis:

Alternative-1 Alternative-1 Differential Lease Sell effect on income Equipment Equipment $ 284,800 $ 274,400 $ 10,400 15,200 13,720 1,480 $ 269,600 $ 260,680$ 8,920 Revenue Cost Income (Loss) $

Note: Commission on sale of equipment = $274,400 * 5% = $13,720

Bullwinkle Company should lease the equipment as it will provide more income of $8,920

Answer-2:

Differential Analysis Continue Product T (Alt. 1) or Discontinue ProductT (Alt. 2) May.9 Continue Discontinue Differential Effect Product Product on Income T(Alternative 1) T(Alternative 2) (Alternative 2) Revenues $ 194,600 $ 194,600 Costs: Variable cost of goods sold (114,600) (114,600) Variable selling expense (33,500) (33,500) Fixed costs (59,200) (59,200) Income (Loss) $ (12,700) $ (59,200) $ 46,500

Product T should be continued as loss will be minimum if product is continued.

Answer-3:

Differential Analysis Make Bread (Alt. 1) or Buy Bread (Alt. 2) July.7 Make Bread (Alternative 1) Buy Bread (Alternative 2) Differential Effect on Income (Alternative 2) $ $ Sales price Unit Costs: Purchase price Delivery Variable costs Fixed factory overhead Income (Loss) 97 11 (97) (11) 114 114 34 148 $ 34 142 $ $ 6

Company should buy the bread.