221_Solutions_Chap_4_Fa_05 - E4-17 The current production...

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E4-17 The current production volume is 400,000 units ($4,400,000/$11). The variable production costs are ($3,200,000 $800,000)/400,000 = $6. Hence, at a unit selling price of $7.50, the order provides a contribution of $1.50 per unit and a total contribution of $75,000 ($1.50 × 50,000). Of course, the large sale to the hospital supply company may take away from some regular sales and it may upset regular customers who learn of the lower price. E4-19 a. Current variable costs ($4.00 × 750) $ 3,000 Fixed costs 1,500 Total costs $ 4,500 Number of meals ÷ 750 Current average cost per meal $ 6.00 b. The per-meal revenue from the Girl Scouts is $4.50 ($180/40). By subtracting the current average cost per meal from this amount, he concluded the restaurant would lose $1.50 per meal. This analysis is incorrect. Because the restaurant has excess capacity, the analysis should emphasize the contribution the sale would make toward covering fixed costs and providing a profit. The per unit contribution is $0.50, ($4.50 $4.00). The total contribution is $20, ($180 [$4.00 ×
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This homework help was uploaded on 02/19/2008 for the course H ADM 221 taught by Professor Gpotter during the Spring '05 term at Cornell University (Engineering School).

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221_Solutions_Chap_4_Fa_05 - E4-17 The current production...

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