Question 1: Costa location Product A Product Total sales volume (unit) 30 560 Revenge 1.000.000 15.000 Variable costs 1. 19.00 153,200.000 11.200 Contribution margin 33,200 33.000 300.000 Feed costs Profit 6400 *) Allocate the fixed costs between products A and B. Use direct laber dollars as the cost driver. allocation rates per DLS allocated costs for A allocated costs for b) Compute the profit margins for products A and B: profit margin profit margin for Enter negative unders with a minus sig, ie, of $1,000 should be entered as 1000, nas(1000) or ($1000 c) should you drop product Aer products in the short term? Why? Keepboth products -- both have positive contribution margin Drop product Ahas negative profit margin Drop product Atas negative contribution margin Drop product Athos aller contribution margin than producto Should you drep product or product in the term? Why? Drop product Aregative profit margin Drop product that negative contribution margin Drop product that contre margin than products .) If you drep Product A in the short term feed costs will remain the same decrease by 59,600 proft will decrease by $3,200 increase by 56,400 Freed contremain the same derse by, you drep product in the long term prot will decrease by 19,200 Increase by 6.400 6) Alle cate the fled costs between products A and using the moments as the cost driver cons for There located amounts are very different from what you put in part(s) In general, should we use the located costs from part(s) or trem part (? Why? from is better use the weed costs from (e) the number of units is ways a better contriver the direct labor depends director can be a better contriver in ometions, and the number of units for some other activity measure) can be a better contriver in the stations Suppose that a fomuses berintensive production process. The most reasonale con driver for manufacturing overhead costs is direct the measured in hours ordofars) Suppose that a firm uses a machine intensive production process. The most reasonable cost driver for manufacturing overhead costs direct her measured in our data) Sportam a machinesie process to make the components for the finished product and the above process to be the finished product. The wants to implementarfined cost allocation with two costo of overhead costs related to the production componenta (e. machine depreciation, rent for the factory building used to make the components, Salaries of machine maintenance The most reasonable cost drivers for the two pols are fool 2. overhead con related to the assembly of the finished product (e. depreciation on tools used by assembly workers, rent for the factory building used for ensembly, salaries of labor supervisor number of units for pool and number of workers for pool director hours or car for bol machine-hours for pool and direct labor hours or dollars for pool 2 machine hours for both pools d) If you drop product A in the short term, fixed costs will remain the same decrease by $9,600 profit will: decrease by $3,200 increase by $6,400 If you drop product A in the long term, fixed costs will remain the same decrease by $9,600 profit will: decrease by $3,200 increase by $6,400 e) Allocate the fixed costs between products A and B, using the number of units as the cost driver. allocation rates per unit allocated costs for A-$ allocated costs for B=$ These allocated amounts are very different from what you got in part (a). In general, should we use the allocated costs from part(a) or from part (e)? Why? use the allocated costs from (a) -- direct labor is always a better cost driver than the number of units use the allocated costs from (e) -- the number of units is always a better cost driver than direct labor It depends -- direct labor can be a better cost driver in some situations, and the number of units (or some other activity measure) can be a better cost driver in other situations 1) Suppose that a firm uses a labor-Intensive production process. The most reasonable cost driver for manufacturing overhead costs is: number of units machine hours direct labor (measured in hours or dollars) Suppose that a firm uses a machine-Intensive production process. The most reasonable cost driver for manufacturing overhead costs is: number of units machine hours direct labor (measured in hours or dollars) 9) Septemused a machine-trive proces to make the components for the the product and the use or intensive process to emble the the product. There wants to mplement a rend cost action with two cost soole: Poor: overhead costs related to the production of components (e. mechine dersion, rent for the factory building used to make the components, series of machine maintenance) Poor zoverhead costs related to remembly of the finished product leg.depreciation on toolsed by my workers, rere for the factory building used for assembly States of bor supervisor The most reasonable costerivers for the two pools are Number of its for post and run ber of workers for pel 2 director hours or dolars for both pools machine hours for peol and direct later hours or del for pool machine hours for both poor Question 1: Cost allocation Product A Product B Total sales volume (units) 360 200 560 Revenue $8,000 $48,000 $56,000 Variable costs: direct materials $1,600 $3,200 $4,800 direct labor $3,200 $8,000 $11,200 Contribution margin $3,200 $36,800 $40,000 Fixed costs $33,600 Profit $6,400 per DLS a) Allocate the fixed costs between products A and B. Use direct labor dollars as the cost driver. allocation rate=$ allocated costs for A-$ allocated costs for B=$ b) Compute the profit margins for products A and B: profit margin for A=$ profit margin for Bus Enter negative numbers with a minus sign, i.e., a loss of $1,000 should be entered as - 1000, not as (1000) or ($1000). c) Should you drop product A or product B in the short term? Why? Keep both products -- both have positive contribution margin Drop product A -- it has negative profit margin Drop product A -- it has negative contribution margin Drop product A -- It has smaller contribution margin than product B Should you drop product A or product B in the long term? Why? Keep both products -- both have positive contribution margin Drop product A -- it has negative profit margin Drop product A -- It has negative contribution margin Drop product A -- It has smaller contribution margin than product B Question 1: Costa location Product A Product Total sales volume (unit) 30 560 Revenge 1.000.000 15.000 Variable costs 1. 19.00 153,200.000 11.200 Contribution margin 33,200 33.000 300.000 Feed costs Profit 6400 *) Allocate the fixed costs between products A and B. Use direct laber dollars as the cost driver. allocation rates per DLS allocated costs for A allocated costs for b) Compute the profit margins for products A and B: profit margin profit margin for Enter negative unders with a minus sig, ie, of $1,000 should be entered as 1000, nas(1000) or ($1000 c) should you drop product Aer products in the short term? Why? Keepboth products -- both have positive contribution margin Drop product Ahas negative profit margin Drop product Atas negative contribution margin Drop product Athos aller contribution margin than producto Should you drep product or product in the term? Why? Drop product Aregative profit margin Drop product that negative contribution margin Drop product that contre margin than products .) If you drep Product A in the short term feed costs will remain the same decrease by 59,600 proft will decrease by $3,200 increase by 56,400 Freed contremain the same derse by, you drep product in the long term prot will decrease by 19,200 Increase by 6.400 6) Alle cate the fled costs between products A and using the moments as the cost driver cons for There located amounts are very different from what you put in part(s) In general, should we use the located costs from part(s) or trem part (? Why? from is better use the weed costs from (e) the number of units is ways a better contriver the direct labor depends director can be a better contriver in ometions, and the number of units for some other activity measure) can be a better contriver in the stations Suppose that a fomuses berintensive production process. The most reasonale con driver for manufacturing overhead costs is direct the measured in hours ordofars) Suppose that a firm uses a machine intensive production process. The most reasonable cost driver for manufacturing overhead costs direct her measured in our data) Sportam a machinesie process to make the components for the finished product and the above process to be the finished product. The wants to implementarfined cost allocation with two costo of overhead costs related to the production componenta (e. machine depreciation, rent for the factory building used to make the components, Salaries of machine maintenance The most reasonable cost drivers for the two pols are fool 2. overhead con related to the assembly of the finished product (e. depreciation on tools used by assembly workers, rent for the factory building used for ensembly, salaries of labor supervisor number of units for pool and number of workers for pool director hours or car for bol machine-hours for pool and direct labor hours or dollars for pool 2 machine hours for both pools d) If you drop product A in the short term, fixed costs will remain the same decrease by $9,600 profit will: decrease by $3,200 increase by $6,400 If you drop product A in the long term, fixed costs will remain the same decrease by $9,600 profit will: decrease by $3,200 increase by $6,400 e) Allocate the fixed costs between products A and B, using the number of units as the cost driver. allocation rates per unit allocated costs for A-$ allocated costs for B=$ These allocated amounts are very different from what you got in part (a). In general, should we use the allocated costs from part(a) or from part (e)? Why? use the allocated costs from (a) -- direct labor is always a better cost driver than the number of units use the allocated costs from (e) -- the number of units is always a better cost driver than direct labor It depends -- direct labor can be a better cost driver in some situations, and the number of units (or some other activity measure) can be a better cost driver in other situations 1) Suppose that a firm uses a labor-Intensive production process. The most reasonable cost driver for manufacturing overhead costs is: number of units machine hours direct labor (measured in hours or dollars) Suppose that a firm uses a machine-Intensive production process. The most reasonable cost driver for manufacturing overhead costs is: number of units machine hours direct labor (measured in hours or dollars) 9) Septemused a machine-trive proces to make the components for the the product and the use or intensive process to emble the the product. There wants to mplement a rend cost action with two cost soole: Poor: overhead costs related to the production of components (e. mechine dersion, rent for the factory building used to make the components, series of machine maintenance) Poor zoverhead costs related to remembly of the finished product leg.depreciation on toolsed by my workers, rere for the factory building used for assembly States of bor supervisor The most reasonable costerivers for the two pools are Number of its for post and run ber of workers for pel 2 director hours or dolars for both pools machine hours for peol and direct later hours or del for pool machine hours for both poor Question 1: Cost allocation Product A Product B Total sales volume (units) 360 200 560 Revenue $8,000 $48,000 $56,000 Variable costs: direct materials $1,600 $3,200 $4,800 direct labor $3,200 $8,000 $11,200 Contribution margin $3,200 $36,800 $40,000 Fixed costs $33,600 Profit $6,400 per DLS a) Allocate the fixed costs between products A and B. Use direct labor dollars as the cost driver. allocation rate=$ allocated costs for A-$ allocated costs for B=$ b) Compute the profit margins for products A and B: profit margin for A=$ profit margin for Bus Enter negative numbers with a minus sign, i.e., a loss of $1,000 should be entered as - 1000, not as (1000) or ($1000). c) Should you drop product A or product B in the short term? Why? Keep both products -- both have positive contribution margin Drop product A -- it has negative profit margin Drop product A -- it has negative contribution margin Drop product A -- It has smaller contribution margin than product B Should you drop product A or product B in the long term? Why? Keep both products -- both have positive contribution margin Drop product A -- it has negative profit margin Drop product A -- It has negative contribution margin Drop product A -- It has smaller contribution margin than product B