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Segmented Income Statement (Partial) – Chapter
12 (13 points)

Fog City Retail operates a retail store in
Phoenix, Las Vegas, and Portland. The
information relates to the Phoenix facility:

The store sold 65,000 units at
$18.00 each, after having purchased the units from various suppliers for
$12.50. Phoenix salespeople are paid a
5% commission based on gross sales dollars.
Phoenix’s sales manager oversees the
placement of local advertising contracts, which totaled $54,000 for the
year. Local property taxes amounted to
The sales manager’s $65,000 salary
is set by Phoenix’s store manager. In
contrast, the store manager’s $134,000 salary is determined by Fog City’s vice
Phoenix incurred $6,800 of other
noncontrollable costs along with $10,000 of income tax expense.
Nontraceable (common) corporate
overhead totaled $68,000.

City’s corporate headquarters is located in Portland, and the company uses responsibility
accounting to evaluate performance.

a segmented income statement for the Phoenix store, being sure to disclose the
segment contribution margin, the segment profit margin, and net income.

Special Order, Outsourcing – Chapter
14 (12 points)

Cornell Corporation manufactures
faucets. Several weeks ago, the firm
received a special-order inquiry from Yale, Inc. Yale desires to market a faucet similar to
Cornell’s model no. 55 and has offered to purchase 3,000 units. The following data are available:
· Cost data for
Cornell’s model no. 55 faucet: direct materials, $45; direct labor, $30 (2
hours at $15 per hour); and manufacturing overhead, $70 (2 hours at $35 per
· The normal selling
price of model no. 55 is $180; however, Yale has offered Cornell only $115
because of the large quantity it is willing to purchase.
· Yale requires a
design modification that will allow a $4 reduction in direct-material cost.
· Cornell’s
production supervisor notes that the company will incur $8,700 in additional
set-up costs and will have to purchase a $3,300 special device to manufacture
these units. The device will be
discarded once the special order is completed.
· Total
manufacturing overhead costs are applied to production at the rate of $35 per
labor hour. This figure is based, in
part, on budgeted yearly fixed overhead of $624,000 and planned production
activity of 24,000 labor hours.
· Cornell will
allocate $5,000 of existing fixed administrative costs to the order as
“…part of the cost of doing business.”

One of Cornell’s staff accountants wants to reject the special
order because “financially, it’s a loser.” Do you agree with this conclusion if Cornell
currently has excess capacity? Show
calculations to support your answer.

If Cornell currently has no excess capacity, should the order be
rejected from a financial perspective?
Briefly explain.

Assume that Cornell currently has no excess capacity. Would outsourcing be an option that Cornell
could consider if management truly wanted to do business with Yale? Briefly discuss, citing several key
considerations for Cornell in your answer.

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