Some questions of Managerial Accounting. Please help, best if you can provide some thoughts upon answer. Thank you

10/2/2017 new homework 6 1. -/3 points Question 1: Special order Sales volume in units 90 Revenue $9,000 Variable costs Contribution margin Fixed costs Profit $900 $8,100 $1,600 $6,500 Special order: A client wants to buy 30 units at a discounted price of $20 per unit. This is a one-time deal (i.e., a short-term decision). You have enough spare capacity to fulfill this special order without cutting back on your regular sales. a) Use the gross approach to decide whether you should take the special order: status quo (no special total amounts after adding order) the special order Revenue Variable costs Contribution margin Fixed costs Profit $9,000 $900 $8,100 $1,600 $6,500 Should you take the special order? Why? NO -- the low price for the special order reduces the contribution margin YES -- the profit is higher with the special order YES -- the profit is positive with the special order b) Use the incremental approach to decide whether you should take the special order. how much each amount changes after adding the special order Incremental revenue Incremental variable costs Incremental contribution margin Incremental fixed costs Incremental profit Should you take the special order? Why? https://www.webassign.net/web/Student/Assignment-Responses/last?dep=17069695 2/5 10/2/2017 new homework 6 YES -- the incremental profit is positive YES -- the total profit is positive NO -- the incremental profit is lower than the original profit 2. -/3 points Question 2: Should you reduce the price or increase advertising? The selling price is $20/unit, variable costs are $10/unit, and fixed costs are $3,000 in total. Sales volume decreased to 200 units because of a recession. You are considering two options to stimulate sales: (1) Reduce the price to $18/unit. This will increase sales volume by 20%. (2) Buy additional advertising for $300 and keep the original price. This will increase sales volume by 20%. Use the gross approach to decide whether you should do nothing (the status quo), reduce the price, or increase advertising. status quo (1) reduce the price (2) increase advertising Volume in units Revenue Variable costs Contribution margin Fixed costs Profit* $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ * enter losses as a negative number: e.g., a loss of $500 should be entered as -500, not as (500) or ($500). What should you do? Reduce the price Do nothing Increase advertising https://www.webassign.net/web/Student/Assignment-Responses/last?dep=17069695 3/5 10/2/2017 new homework 6 3. -/2 points Question 3: Make versus buy You make refrigerators. Currently, you manufacture compressors for your refrigerators in-house. An outside supplier has offered to sell you equivalent compressors at a wholesale price of $95 per unit. You need 1,000 compressors per month. The internal production costs per compressor are as follows: cost per unit direct materials $40 direct labor $40 variable overhead $10 fixed overhead $30 total $120 If you outsource the production of compressors (the buy option) in the short term, how will this choice affect your costs and profit? First, compute variable costs under MAKE versus BUY: MAKE BUY unit VC total VC If you outsource (BUY), the incremental revenue, costs, and profit are: how much each amount changes if you outsource Incremental revenue Incremental VC Incremental CM Incremental FC Incremental profit Enter negative amounts with a minus sign, i.e., -1,000 not ($1,000). Should you outsource? YES - outsourcing reduces costs by $5,000 NO - outsourcing reduces profit by $5,000 https://www.webassign.net/web/Student/Assignment-Responses/last?dep=17069695 4/5 10/2/2017 new homework 6 4. -/2 points Question 4: Choosing the product mix when capacity is in short supply You have three product lines: Basic, Premium, and Supreme. You have limited capacity of 300 machine hours. You face excess demand for all three products (assume unlimited demand for simplicity). Basic Premium Supreme Price per unit $4,200 $9,800 $14,000 Unit variable cost $1,400 $2,800 $4,200 1 2 4 Machine hours per unit Compute the CM per unit of capacity (i.e, per machine-hour) for each product: Basic = $ per hour Premium = $ per hour Supreme = $ per hour Which product(s) should you make? Supreme only Make all three products to take advantage of the high demand Premium only Basic only How many units of each product should you make? (enter 0 for products that you do not want to make) Basic = units Premium = units Supreme = units Hint if you get stuck: You have 300 machine hours. https://www.webassign.net/web/Student/Assignment-Responses/last?dep=17069695 5/5