221_Solutions_Chap_4_Fa_05

# 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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