MINI-CASE 2 Differential analysis similar to Self-Study Problem 2 Handyman Helper, Inc.,… 1 answer below »

MINI-CASE 2

Differential analysis similar to Self-Study Problem 2 Handyman Helper, Inc., manufactures household products such as windows, light fixtures, ladders, and work tables. During the year it produced 10,000 Model 10X windows but only sold 5,000 units at $40 each. The remaining units cannot be sold through normal channels. Cost for inventory purposes on December 31 included the following data on the unsold units:

Materials

10.00

Labor

5.00

Variable overhead

3.00

Fixed overhead

2.00

Total cost per window

$20.00

Handyman Helper can sell the 5,000 windows at a liquidation price of $20.00 per window, but it will incur a packaging and shipping charge of $7.50 per window.

Required:

1. Identify the relevant costs and revenues for the liquidation sale alternative. Is Handyman Helper better off accepting the liquidation price rather than doing nothing?

2. Assume that Model 10X can be reprocessed to another size window, Model 20X, which will require the same amount of labor and overhead as was required to initially produce, but sells for only $33. Determine

the most profitable course of action—liquidates or reprocess.