I attached the question paper and solution for you referring ,I cannot understand the solution2 and 3 ,why have to use 0.06x (80000-50000 ) and 0.06 x(80000-70000) ?why not 80000 x 0.06 ?
\\Murdoch Past Bum Oludocs / Compatibility Mode ] - Microsoft Word Home\\ Insert Page layout References Mailings REVIEW| VIEW Calentania\\ B. I| # - # X X Q ` - A -\\BEZEK G . E .` \\AaBbC AaBbC Nabbcell AaBb[ .` AA _Paragraph Heading 1 Heading ? Headings Herzog's = S^_\\ If Select - Styles 3 . Lease and Make _BUY Variable manufacturing costs $19, 600 *^ Lease\\ 27, 000 Supervisor salary 10, 000 Purchase cost Total relevant costs $56.600 $10. 000 $7 x 2, 800 $ $25 x 2, 800 Drop B and Make Lost sales From A $ 9,000 Variable cost of manufacturing* 18, 424 Reduction of other variable costs ( 60.0) Loss in contribution margin for B} 34, 000 Purchase cost* Total relevant costs $60. 8:24 10. 94 x 2, 8.90 x 57.00 60. 06 x ($80, 000 - $70, 000 ) The correct decision now is to lease and make the component Market Ers ) Inguam MAunite`File Home Insert Murdoch Past Exim Q3.docx[Compatibility Mode] - Microsoft Word Page Layout References Mailingr Review View Cambria BIUMexx AV -A 35 2.6. AaBb( AaBbC AaBbCen AaBbC a Find . W Paste Heading 1 1 Heading 2 H Heading 4 4 Heading 5 Change Font Paragraph Styles 4 Select - The most favorable alternative is to drop B and make the subassembly. 2. Analysis with complementary effect: Make Buy Lost sales for A: 9,000 1 1 Cost of making components 13,160 Reduction of other variable costss I (1,800 Lost contribution margin for B 34,000 Cost to purchased $50,000 Total relevant costs $54.360 $50.000 .0.06 x $150,000 $0.94 x 2,000 x $7.00 0.06($80,000 - $50,000); since sales decrease by 6 percent if the component is manufactured. the other variable costs (those other than the cost of the component) will decrease proportionately. dIf the buy alternative is chosen, there is no reduction in sales and the same number of components will be needed. The correct decision now is to keep B and buy the component. Page: 2et3 Worde 615 5 English (Australia) e DOW PPast Murdoch Exam Question 3 Henderson Company produces two products , A and B. The segmented income statement for a typical quarter follows :" Product A _Product B Total Sales $ 150, 000 | $ 80, 000 $ 230, 000 Less : Variable expenses 80 , 000 46 , 000 * 126 , 000 Contribution margin $ 70, 000 $ 34, 000 $ 104 , 000 Less : Direct fixed expenses* 20 , 000 38 , 000 58, 000 Segment margin $ 50, 000 $ ( 4, 000 ) $ 46 , 000 Less : Common fixed expenses 30 , 000 Operating income $ 16 , 000 * included depreciation Product A uses a subassembly that is purchased from an external supplier for $25 per unit Each quarter , 2, 000 subassemblies are purchased . All units produced are sold , and there are no ending inventories of subassemblies . Henderson is considering making the subassembly rather than buying it . Unit variable manufacturing costs are as follows :" Direct materials $ 2 Direct labour ~ $ 3 Variable overhead $ 2 I' wo alternatives exist to supply the productive capacity :" 1 . Lease the needed space and equipment at a cost of $ 27 , 000 per quarter for the space and $10, 000 per quarter for a supervisor . No other fixed expenses are incurred . 2 . Drop Product B . The equipment could be adapted with virtually no cost and the existing* space utilised to produce the subassembly . The direct fixed expenses , including supervision , would be $38, 000 , $8 , 000 of which is depreciation on equipment If Product B is dropped , the sales of Product A will not be affected irrelevant . Required :" Costs 2 . Should Henderson Company make or buy the subassembly ? If it makes the subassembly , which alternative should be chosen ? Explain and provide supporting computations . ( 8 marks ) b. Suppose that dropping B will decrease sales of A by 6 per cent. What effect does this have on the decision ? ( 7 marks ) C . Assume that dropping B decreases sales of A by 6 percent and that 2, 800 subassemblies are required per quarter . As before , assume that there are no ending inventories of subassemblies and that all units produced are sold . Assume also that the per - unit sales price and variable costs are the same as in Requirement ( a ) . Include the leasing alternative in your consideration . Now , what is the correct decision ?" ( 7 marks ) ( Total : 22 Marks )
