Selecting Appropriate Data for Product Mix Decisions: The Fiske Corporation manufactures and sells two products, A and B. The demandfor both products exceeds current production capacity. The corporation has beenunable to maintain an inventory of either product or of product B's primary direct material, which presently is in short supply. Labor also is in short supply, but the existing force can be used for production of either of the two products. Data are available on the number of units of each product sold (net of returns) and on the number of direct labor-hours expended on each product. Machinery life is directly related to the number of units of each of the products manufactured. The company utilizes a standard costing system and has determined that the standard unit cost of these products is as shown below:

Overhead shown on the standard cost sheets is obtained from the flexible budget shown below. This budget is based on an assumption that 8,000 units of product Aand 6,400 units of product B are being produced. Outside consultants have been engaged to determine an optimal product mix, andthey currently are developing a linear programming model to determine how manyunits of each product to manufacture in order to maximize profit.

The following pro forma statement (in thousands) has been prepared for the month of April:

Required:

For each of the numbered items below select the lettered answer that best indicates in what way the preceding financial data should be used in the determination of the optimal product mix. Assume that variable revenues and expenses are completely variable.

Answer choices:

a. This aggregate dollar amount for the month divided by the aggregate number of units sold during the month should be used.

b. This aggregate dollar amount should be used.

c. This cost or revenue item should not be used.

d. This cost or revenue item should be included, but amounts inappropriate for financial accounting purposes should be used.

e. The information given is insufficient to determine whether or not the item should be used.

Items to be answered: 

1. Sales. 2. Sales returns and allowances. 3. Sales discounts. 4. Direct materials. 5. Direct labor. 6. Indirect labor (fixed). 7. Depreciation-building. 8. Variable payroll taxes. 9. Utilities. 10. Supplies. 11. General and administrative expenses-variable. 12. General and administrative expenses-fixed. 13. Commissions on sales. 14. Advertising. 15. Bad debts expense.

Transcribed Image Text:

Product A Product B Direct materials $1.000 $1.953 Direct labor .375 .781 Factory overhead .975 1.344 $2.350 $4.078