Uitwerking_case_MA21_week4 - Bachelor Economie Management...

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Unformatted text preview: Bachelor Economie Management Accounting jaar 2, periode 1 Case te behandelen tijdens de AWV Deze week richt de aandacht zich op Case 13- 52 en Case14-62 CASE 13-52 (45 minutes) 1. Yes, Air Comfort Division should institute the 5% price reduction on its air conditioner units because net income would increase by $264,000. Supporting calculations follow: Before 5% Price Reduction After 5% Price Reduction Per Unit Total (in thousands) Per Unit Total (in thousands) Total Difference (in thousands) Sales revenue $800 $12,000 $760 $13,224 .0 $1,224 .0 Variable costs: Compressor $140 $ 2,100 $140 $ 2,436.0 $ 336.0 Other direct material 74 1,110 74 1,287.6 177.6 Direct labor 60 900 60 1,044.0 144.0 Variable overhead 90 1,350 90 1,566.0 216.0 Variable selling 36 540 36 626 .4 86 .4 Total variable costs $400 $ 6,000 $400 $ 6,960 .0 $ 960 .0 Contribution margin $400 $ 6,000 $360 $ 6,264 .0 $ 264 .0 Summarized presentation: Contribution margin of sales increase ($360 2,400) $864,000 Loss in contribution margin on original volume arising from decrease in selling price ($40 15,000) 600,000 Increase in net income before taxes $264,000 2. No, the Compressor Division should not sell all 17,400 units to the Air Comfort Division for $100 each. If the Compressor Division does sell all 17,400 units to Air Comfort, Compressor will only be able to sell 57,600 units to outside customers instead of 64,000 units due to the capacity restrictions. This would decrease the Compressor Divisions net income before taxes by $71,000. Compressor Division would be willing to accept any orders from Air Comfort above the 64,000 unit level at $100 per unit because there would be a positive contribution margin of $43 per unit. Supporting calculations follow. Outside Sales Air Comfort Sales Selling price ........................................................................................ $200 $100 Variable costs: Direct material................................................................................... 24 $ 21 Direct labor ..........................................................................................
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This note was uploaded on 09/13/2008 for the course ACCOUNTING 1054 taught by Professor Brooke during the Spring '08 term at Accreditation Commission for Acupuncture and Oriental Medicine.

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Uitwerking_case_MA21_week4 - Bachelor Economie Management...

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