Question
Benoit Company produces three products, A, B, and C. Data concerning the three products follow (per unit): Product A B C Selling price $ 75
Benoit Company produces three products, A, B, and C. Data concerning the three products follow (per unit): |
Product | |||||||||||
A | B | C | |||||||||
Selling price | $ | 75 | $ | 55 | $ | 65 | |||||
Variable expenses: | |||||||||||
Direct materials | 22.50 | 16.50 | 4.55 | ||||||||
Other variable expenses | 22.50 | 24.75 | 40.95 | ||||||||
Total variable expenses | 45.00 | 41.25 | 45.50 | ||||||||
Contribution margin | $ | 30.00 | $ | 13.75 | $ | 19.50 | |||||
Contribution margin ratio | 40 | % | 25 | % | 30 | % | |||||
Demand for the companys products is very strong, with far more orders each month than the company can produce with the available raw materials. The same material is used in each product. The material costs $7 per pound with a maximum of 4,800 pounds available each month. |
Required: |
a. | Compute contribution margin per pound of materials used. (Round your intermediate calculations and final answers to 2 decimal places.) |
b. | Which orders would you advise the company to accept first, those for A, for B, or for C? Which orders second? Third? |
Delta Company produces a single product. The cost of producing and selling a single unit of this product at the companys normal activity level of 87,600 units per year is: |
Direct materials | $ | 1.90 | |
Direct labor | $ | 2.00 | |
Variable manufacturing overhead | $ | .60 | |
Fixed manufacturing overhead | $ | 3.85 | |
Variable selling and administrative expenses | $ | 1.30 | |
Fixed selling and administrative expenses | $ | 1.00 | |
|
The normal selling price is $20 per unit. The companys capacity is 100,800 units per year. An order has been received from a mail-order house for 1,100 units at a special price of $17.00 per unit. This order would not affect regular sales. |
Required: |
1. | If the order is accepted, by how much will annual profits be increased or decreased? (The order will not change the companys total fixed costs.) |
2. | Assume the company has 500 units of this product left over from last year that are inferior to the current model. The units must be sold through regular channels at reduced prices. What unit cost is relevant for establishing a minimum selling price for these units? (Round your answer to 2 decimal places.) |
For many years Futura Company has purchased the starters that it installs in its standard line of farm tractors. Due to a reduction in output, the company has idle capacity that could be used to produce the starters. The chief engineer has recommended against this move, however, pointing out that the per unit cost to produce the 60,000 starters needed would be greater than the current $10.30 per unit purchase price: |
Per Unit | Total | |||
Direct materials | $ | 5.00 | ||
Direct labor | 2.50 | |||
Supervision | 1.70 | $ | 102,000 | |
Depreciation | 1.00 | $ | 60,000 | |
Variable manufacturing overhead | 0.40 | |||
Rent | 0.60 | $ | 36,000 | |
Total product cost | $ | 11.20 | ||
A supervisor would have to be hired to oversee production of the starters. However, the company has sufficient idle tools and machinery so that no new equipment would have to be purchased. The rent charge above is based on space utilized in the plant. The total rent on the plant is $87,000 per period. Depreciation is due to obsolescence rather than wear and tear. |
Required: |
1. | Determine the total relevant cost per unit if starters are made inside the company. (Round your answer to 2 decimal places.) |
2. | Determine the total relevant cost per unit if starters are purchased from an outside supplier. (Round your answer to 2 decimal places.) |
3. | What is the increase or decrease in profits as a result of purchasing the starters from an outside supplier rather than making them inside the company? (Do not round intermediate calculations. Round your answer to the nearest dollar amount.) |
Bed & Bath, a retailing company, has two departments, Hardware and Linens. The companys most recent monthly contribution format income statement follows: |
Department | |||||||||
Total | Hardware | Linens | |||||||
Sales | $ | 4,340,000 | $ | 3,180,000 | $ | 1,160,000 | |||
Variable expenses | 1,294,000 | 874,000 | 420,000 | ||||||
Contribution margin | 3,046,000 | 2,306,000 | 740,000 | ||||||
Fixed expenses | 2,300,000 | 1,460,000 | 840,000 | ||||||
Net operating income (loss) | $ | 746,000 | $ | 846,000 | $ | (100,000 | ) | ||
A study indicates that $377,000 of the fixed expenses being charged to Linens are sunk costs or allocated costs that will continue even if the Linens Department is dropped. In addition, the elimination of the Linens Department will result in a 13% decrease in the sales of the Hardware Department. |
Required: |
If the Linens Department is dropped, what will be the effect on the net operating income of the company as a whole? |
Use the following information to answer the questions: Wexpro, Inc., produces several products from processing 1 ton of clypton, a rare mineral. Material and processing costs total $32,000 per ton, one-fourth of which is allocated to product X15. 5,000 units of product X15 are produced from each ton of clypton. The units can either be sold at the split-off point for $13.00 each, or processed further at a total cost of $10,000 and then sold for $17.33 each. |
Required:
What is the profit or loss from additional processing?
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