SolutionstoHW3 - Homework Problems: 4-35, 4-36, 4-37, 4-42,...

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Homework Problems: 4-35, 4-36, 4-37, 4-42, 4-50 Optional: 4-39, 4-41, 4-45, 4-47 4-35. (15 min.) Make or Buy Decisions: Mel’s Meals 2 Go. Mel could save $0.10 per cookie ($0.20 per lunch) by making the cookies rather than buying them. Status Quo (Buy) Alternative (Make) Difference (Buy–Make) Cost to buy $0.60 $0 $0.60 (higher) Direct material 0 0.20 0.20 (lower) Direct labor 0 0.15 0.15 (lower) Variable overhead 0 0.15 0.15 (lower) $0.60 $0.50 $0.10 (higher) 4-36. (10 min.) Make or Buy with Opportunity Costs: Mel’s Meals 2 Go (continuation). Yes. In this case, he should continue to buy the cookies. The cost of making 20,000 cookies is $13,000 [=($0.50 20,000 cookies) + $3,000 lost contribution margin on dinners]. The cost of buying the cookies $12,000 (= $0.60 x 20,000 cookies). 4-37. (30 min.) Dropping Product Lines: Atlantic Soup Company. Status Quo Alternative: Drop Clam Chowder Difference (all lower under the alternative) Revenue $126,600 $83,800 $42,800 Less Variable Costs (100,700) (62,100) (38,600) Contribution Margin $ 25,900 $ 21,700 $ 4,200 Less Fixed Costs (17,800) (15,130) a (2,670) Operating Profit $ 8,100 $ 6,570 $ 1,530 a$15,130 = $17,800 .85 Atlantic Soup Company should keep the clam chowder line because the loss of its contribution margin is greater than the reduction in fixed costs.
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4-42. (30 min.) Special Orders: Sherene Nili Based on profit, Ms. Nili should accept the special order. Accepting the special order means Ms. Nili will only be able to produce 10 standard dresses. Each standard dress requires 15 (= 300 hours ÷ 20 dresses) hours of machine time per dress. Because she is committed to the custom dresses (whether more profitable or not), she must cut back the number of standard dress by 10. The rent, heat and light, and other production costs are fixed and will not be affected by this decision. Without Special Order With Special Order Impact Revenuea $ 75,000 $ 87,500 $ 12,500 increase Materialsb 18,000 20,000 2,000 increase Laborc 29,000 34,500 5,500 increase Machine depreciationd 900 890 10 decrease Contribution margin $ 27,100 $ 32,110 $ 5,010 increase* Rent 7.000 7.000 0 Heat and light 1,600 1,600 0 Other production costs 2,800 2,800 0 7,700 7,700 0 Operating profit $ 8,000 $ 13,010 $ 5,010 increase* * Note the equality. a Additional revenues with the special order = $25,000 [10 standard dresses x ($25,000 ÷ 20 dresses)]. b Additional materials with the special order = $6,000 [10 standard dresses x ($8,000 ÷ 20 dresses)]. c Additional labor with the special order = $10,000 [10 standard dresses x ($9,000 ÷ 20 dresses)]. d Reduced machine depreciation with the special order = $140 $150. (Note the machine depreciation rate is $1 per hour.) Alternative solution using differential analysis: Additional revenue. .......................... $12,500 =$25,000 10 x ($25,000 ÷ 20) Additional materials . ........................ 2,000 = $6,000 10 x ($8,000 ÷ 20) Additional labor. ............................... 5,500
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This note was uploaded on 05/06/2008 for the course UGBA 102B taught by Professor Fan during the Spring '08 term at University of California, Berkeley.

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SolutionstoHW3 - Homework Problems: 4-35, 4-36, 4-37, 4-42,...

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