CH 12 Solutions Horngren 13th Edition

# CH 12 Solutions Horngren 13th Edition - CH 12 Solutions...

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CH 12 Solutions Horngren 13 th Edition 12-18 (15-20 min.) Short-run pricing, capacity constraints. 1. Per kilogram of hard cheese: Milk (10 liters × \$1.50 per liter) \$15 Direct manufacturing labor 5 Variable manufacturing overhead 3 Fixed manufacturing cost allocated 6 Total manufacturing cost \$29 If Vermont Hills can get all the Holstein milk it needs, and has sufficient production capacity, then, the minimum price per kilo it should charge for the hard cheese is the variable cost per kilo = \$15+5+3 = \$23 per kilo. 2. If milk is in short supply, then each kilo of hard cheese displaces 2.5 kilos of soft cheese (10 liters of milk per kilo of hard cheese versus 4 liters of milk per kilo of soft cheese). Then, for the hard cheese, the minimum price Vermont should charge is the variable cost per kilo of hard cheese plus the contribution margin from 2.5 kilos of soft cheese, or, \$23 + (2.5 × \$8 per kilo) = \$43 per kilo That is, if milk is in short supply, Vermont should not agree to produce any hard cheese unless the buyer is willing to pay at least \$43 per kilo. 12-24 (20 - 25 min.) Cost-plus, target pricing, working backwards. 1. Investment \$2,400,000 Return on investment 20% Operating income (20% × \$2,400,000) \$480,000 Operating income per unit of RF17 (\$480,000 ÷ 20,000) \$24 Full cost per unit of RF17 \$300 Selling price (\$300 + \$24) \$324 Markup percentage on full cost (\$24 ÷ \$300) 8% With a 50% markup on variable costs, Selling price of RF17 = Variable cost per unit of RF17 × 1.50, so: Variable costs per unit of RF17 = Selling price of RF17 1.50 = 50 . 1 324 \$ = \$216 2. Fixed cost per unit = \$300 – \$216 = \$84 Total fixed costs = \$84 per unit × 20,000 units = \$1,680,000 At a price of \$348, sales = 20,000 units × 0.90 18,000 Revenues (\$348 × 18,000) \$6,264,000 Variable costs (\$216 × 18,000) 3,888,000 Contribution margin (\$132 × 18,000) 2,376,000

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Fixed costs 1,680,000 Operating income \$ 696,000 If Waterbuy increases the selling price of RF17 to \$348, its operating income will be \$696,000. This would be more than the \$480,000 operating income Waterbury earns by selling 20,000 units at a price of \$324, so, if its
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