Flop company manufactures 10,000 units of pump parts for use in its annual production.Costs are direct materials

($20,000), direct labor ($55,000), variable overhead ($45,000), and fixed overhead ($70,000). Flozzy Company has offered to sell Flop 10,000 units of the pump parts for $18per unit. If Flop accepts the offer, some of the facilities presently used to manufacture the pump parts could be rented to a third party at an annual rental of $15,000. Additionally, $4 per unit of the fixed overhead applied to the pump parts would be totally eliminated. Should Lockhart accept Flozzy’s offer, and why?

What would be the effect on a company’s net income of discontinuing a department with a contribution margin of $16,000 and allocated overhead of $32,000 (of which $14,000 cannot be eliminated)?

The Best BBQ Company owns numerous restaurants and food production facilities. The company routinely evaluates proposals to drive operational efficiency. Four such proposals are currently under review. One entails the suggestion to close the unprofitable store in San Antonio. Another is to outsource the acquisition of jalapenos, rather than growing them. Another proposal is to sell packaged sausage to a non-competing restaurant chain under a private label. The final proposal is to scrap packaging material that is printed with an old logo. You are the controller for The Best BBQ Companyand are reviewing staff-prepared reports for each proposal. The reports are summarized below.Critique each proposal (below) as the controller. Your answer should include whether the staff’s logic is sound or faulty, and include support for your conclusions (e.g., numbers, calculations, etc.).(Answers should normally be less than 50-75 words).

a. San Antonio Proposal: The Staff indicates that the San Antonio store should be closed. The company is a consistent money loser. Below is an income report for the San Antonio store for the past year. Half of the fixed expenses relate to facilities rent under a 20-year non-cancelable lease. The lease costs cannot be avoided, and the location is not able to be subleased to another user.Sales $ 1,400,000Variable expenses 1,000,000Contribution margin $ 400,000Fixed expenses 650,000Income (loss) $ (250,000)

b. Outsource Jalapenos Proposal: The company spent a total of $2,000,000 producing jalapenos during the past year. The jalapenos were grown on a company-owned farm. A vendor has offered to supply a similar quantity and grade of jalapenos for $2,200,000. Staff recommends continuing to grow jalapenos because the proposed purchase price is 10% higher than the cost of growing jalapenos. Staff believes it is inappropriate to consider that the jalapeno farm could be leased to another farmer for$350,000, if it is diverted from jalapeno production.

c. Sell Packaged Sausage Proposal: The other company has offered to buy packaged sausage at $4 perpound. The packing plant is well below full capacity and can accommodate the request without incurring any additional fixed costs. However, staff believes it would be inappropriate to price thesausage below its own internal cost of $4.50 per pound, which consists of raw materials ($2.50), directlabor ($0.75), variable factory overhead ($0.25), and fixed factory overhead ($1.00). This transaction would result in no material amount of added selling, general, or administrative costs. Final Exam//Cost Accounting (ACCT 321)//Summer 2016Page 4 of 49d. Scrap Packaging Material Proposal: The company spent $500,000 on packaging material that isimprinted with an old logo. It is unlikely this material will ever be used. However, staff recommends against scrapping it because this will result in an immediate charge against net income. It costs only$2,000 per year to store the material.

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