Part 2 contains 3 Decision making recommendations that are independent of each other worth 2 pts. Each for a total of 6 pts. Covers material in Module 17

Decision Making #1-Special Order

Snider, Inc., which has excess capacity, received a special order for 2,000 units at a price of $15 per unit which it could produce with the excess capacity.

Currently, production and sales are anticipated to be 10,000 units without considering the special order. Budget information for the current year sales of 10,000 units follows.

Sales

$200,000

Less: cost of goods sold

150,000

Gross Margin

$50,000

Cost of goods sold includes $25,000 of fixed manufacturing cost.

Required:

If the special order is accepted, calculate how much the company's gross margin will change. Make sure you show your work and explain if you would

accept or not accept this special order and why?

Recommendation:

Decision Making #2-Sell or Process Further Joint Product Decision

Lido manufactures A and B from a joint process cost = $70,000. Five thousand pounds of A can be sold at split-off for $20 per pound or processed further at an

additional cost of $12,000 and then sold for $24. Ten thousand pounds of B can be sold at split-off for $14 per pound or processed further at an additional cost of $20,000 and later sold for $17.

Required:

Which products should be processed further or not? Why? Give the dollar impact to income for each product based on your recommendation.

Recommendation:

Decision making #3-Use of Limited Resources-Singe Constraint

Bush Manufacturing has the following labor hours available for producing M and N:

25,000

Total Direct labor hours available

Consider the following information:

M

N

Required Labor per unit in hours

2

3

Maximum demand in units

8,000

7,000

Contribution Margin per unit

8

9

Required:

What is the optimal product mix(how many M and N should be produced)? Explain your answer and show computations.