The cost accountant of the Stangren Corporation, your client, wants your opinion of a technique suggested to him by a young accounting graduate he employed as a cost analyst. The following information was furnished you for the corporation's two products, trinkets and gadgets:

Required:

a. For what kinds of decisions are contribution margin data (revenue in excess of variables cost) useful?

b. Comparing the information in Exhibit A with the graph in Exhibit B, identify and list the graphic location (coordinate) of the 1. cutting department's capacity.
2. production limitation for gadgets because of the materials shortage.
3. area of feasible (possible) production combinations.

c. 1. Compute the contribution margin per unit for trinkets and gadgets.
2. Compute the total contribution margin of each of the points of intersections of lines bounding the feasible (possible) production area.
3. Identify the best production alternative.

Transcribed Image Text:

a. Exhibit A Daily Capacities in Units Cutting Finishing Sales Price Variable Cost Department Department per Unit per Unit Trinkets 400 240 $50 $30 Or Gadgets 200 320 $70 $40 b. The daily capacities of each department represent the maximum production for either trinkets or gadgets. However, any combination of trinkets and gadgets can be produced as long as the maximum capacity of the department is not exceeded. For example, two trinkets can be produced in the cutting department for each gadget not produced and three trinkets can be produced in the finishing department for every four gadgets not produced. c. Material shortages prohibit the production of more than 180 gadgets per day. d. Exhibit B is a graphic expression of simultaneous linear equations developed from the production information above.