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

Info icon This preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
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
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
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
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern