Reference no: EM13550679

1.Banner Company produces three products: A, B, and C. The selling price, variable costs, and contribution margin for one unit of each product follow:
Product
A B C
Selling price $ 120 $

160
$ 110

Variable costs:
Direct materials 66.00 56.00 65.40
Direct labor 9.00 30.00 12.00
Variable manufacturing overhead 3.00 10.00 4.00

Total variable cost 78.00 96.00 81.40

Contribution margin $ 42.00 $ 64.00 $ 28.60

Contribution margin ratio 35 % 40 % 26 %


Due to a strike in the plant of one of its competitors, demand for the company's products far exceeds its capacity to produce. Management is trying to determine which product(s) to concentrate on next week in filling its backlog of orders. The direct labor rate is $6 per hour, and only 3,290 hours of labor time are available each week.

Required:
1.

Compute the amount of contribution margin that will be obtained per hour of labor time spent on each product. (Round your intermediate calculations and final answers to 2 decimal places.)

A B C
Contribution margin per labor hour $_____ $ ____ $ _____


3.

By paying overtime wages, more than 3,290 hours of direct labor time can be made available next week. Up to how much should the company be willing to pay per hour in overtime wages as long as there is unfilled demand for the three products? (Round your intermediate calculations and final answers to 2 decimal places.)

Maximum amount $ ______ per hour

2.Glade Company produces a single product. The costs of producing and selling a single unit of this product at the company's current activity level of 8,600 units per month are:


Direct materials $ 2.50
Direct labor $ 4.00
Variable manufacturing overhead $ 0.90
Fixed manufacturing overhead $ 3.85
Variable selling and administrative expenses $ 1.00
Fixed selling and administrative expenses $ 3.00

The normal selling price is $17.75 per unit. The company's capacity is 11,200 units per month. An order has been received from a potential customer overseas for 2,600 units at a price of $13.50 per unit. This order would not affect regular sales.

Required:
1.

If the order is accepted, by how much will monthly profits increase or decrease? (The order would not change the company's total fixed costs.) (Input the amount as a positive value.)

Monthly profits would increase by $ _______

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.)

Relevant cost per unit $__________

Boyle's Home Center, a retailing company, has two departments, Bath and Kitchen. The company's most recent monthly contribution format income statement follows:



Department
Total Bath Kitchen
Sales $ 4,210,000 $ 1,020,000 $ 3,190,000
Variable expenses 1,332,000 413,000 919,000

Contribution margin 2,878,000 607,000 2,271,000
Fixed expenses 2,270,000 850,000 1,420,000

Net operating income (loss) $ 608,000 $ (243,000 ) $ 851,000


A study indicates that $377,000 of the fixed expenses being charged to the Bath Department are sunk costs or allocated costs that will continue even if the Bath Department is dropped. In addition, the elimination of the Bath Department would result in a 11% decrease in the sales of the Kitchen Department.

Required:

If the Bath Department is dropped, what will be the effect on the net operating income of the company as a whole? (Input the amount as a positive value.)

dercease in net operating income by $ ________
For many years, Diehl Company has produced a small electrical part that it uses in the production of its standard line of diesel tractors. The company's unit product cost for the part, based on a production level of 55,000 parts per year, is as follows:

Per Part Total
Direct materials $ 5.00
Direct labor 3.20
Variable manufacturing overhead 0.70
Fixed manufacturing overhead, traceable 3.00 $ 165,000
Fixed manufacturing overhead,common (allocated on the basis of labor-hours) 2.00 $ 110,000

Unit product cost $ 13.90


An outside supplier has offered to supply the electrical parts to the Diehl Company for only $11.40 per part. One-third of the traceable fixed manufacturing cost is supervisory salaries and other costs that can be eliminated if the parts are purchased. The other two-thirds of the traceable fixed manufacturing costs consist of depreciation of special equipment that has no resale value. Economic depreciation on this equipment is due to obsolescence rather than wear and tear. The decision to buy the parts from the outside supplier would have no effect on the common fixed costs of the company, and the space being used to produce the parts would otherwise be idle.

Required:
1.

Determine the total relevant cost if parts are made inside the company. (Do not round intermediate calculations. Round your answer to the nearest dollar amount.)

Total relevant cost (55,000 parts) $ ________

2.

Determine the total relevant cost if parts are purchased from the outside supplier. (Do not round intermediate calculations. Round your answer to the nearest dollar amount.)

Total relevant cost (55,000 parts) $ _______

3.

What is the increase or decrease in profits as a results of purchasing the parts from the outside supplier rather than making them inside the company? (Input the amount as a positive value. Do not round intermediate calculations. Round your answer to the nearest dollar amount.)

Profit would decrease by $_____ per year