,4) Morris Incorporated is a management consulting firm that specializes in management
TE
training programs. Tackle Manufacturing Incorporated has approached Morris to contract for
management training for a one-year period. Last year's income statement for Morris is as
follows:
Sales Revenue $ 360,000
ST
Costs:
Labor $ 120,000
Equipment Lease 12,000
SO
Rent 24,000
Utilities 8,400
Supplies 23,600
Other Costs 14,400
LU
Manager’s Salary 80,000
Total Costs 282,400
Operating Profit (Loss) $ 77,600
TI
To satisfy the Tackle contract, another part-time trainer will need to be hired at $42,000.
O
Supplies will increase by 12% and other costs will increase by 15%. In addition, new equipment
will need to be leased at a cost of $2,500.
N
a. What are the differential costs that would be incurred if the Tackle contract is signed?
b. If Tackle will pay $55,000 for one year, should Morris accept the contract? Explain your
answer.
, TE
5) The Arielle Company reported the following results for the manufacture and sale of one
of its products known as Controllers during the most recent year.
Sales (6,500 Controllers at $130 each) $ 845,000
ST
Cost of sales 390,000
Distribution costs 65,000
Advertising expense 275,000
Salaries 25,000
Building costs 145,000
SO
Operating loss $ (55,000)
The Arielle Company is trying to determine whether or not to discontinue the manufacture and
sale of Controllers. The operating results reported above for last year are expected to continue in
the foreseeable future if the product is not dropped. The building costs represent the costs of
production facilities and equipment that the Controllers product shares with other products
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produced by Arielle. If the Controllers product were dropped, there would be no change in the
building costs of the company. Management has determined that discontinuing the manufacture
and sale of Controllers will have no effect on the company's other product lines. Determine the
change in operating profits that will happen if the manufacture and sale of Controllers is
discontinued.
TI
O
N
6) The management of Parachute Corporation is considering dropping product ABC123.
Data from the company's accounting system appear below:
Sales $ 260,000
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