Managementmayalsowanttoconsiderthe impactonthemoraleo

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Unformatted text preview: ixed costs are not affected Change in operating inco me $30,000 22,500 $ 7,500 5. (b) $4.15 Different ial costs: Variable: Manufacturing Shipping Fixed: $4,000 ÷ 10,000 $3.00 0.75 $3.75 ´ 10,000 0.40 ´ 10,000 $4.15 ´ 10,000 $37,500 4,000 $41,500 Selling price to break even is $4.15 per unit. 6. (e) $1.50, the variable market ing costs. The other costs are past costs and therefore, are irrelevant. 11­30 7. (e) None of these. The correct answer is $3.55. This part always gives students trouble. The short­cut solut ion below is fo llowed by a lo nger solution that is helpful to students. Short­cut solut ion: The highest price to be paid would be measured by those costs that could be avo ided by halt ing production and subcontracting: Variable manufacturing costs Fixed manufacturing costs saved $60,000 ÷ 240,000 Marketing costs (0.20 ´ $1.50) Total costs Longer but clearer solut ion: Comparative Annual Income Statement Present Difference Proposed Revenues Variable costs: Manufacturing, 240,000 ´ $3.00 Marketing and other, 240,000 ´ $1.50 Variable costs Contribut ion margin Fixed costs: Manufacturing Marketing and other Total fixed costs Operating inco me * $3.00 0.25 0.30 $3.55 $1,440,000 720,000 360,000 1,080,000 360,000 120,000 216,000 336,000 $ 24,000 $ – $1,440,000 * 852,000 288,000 1,140,000 300,000 +132,000 – 72,000 – 60,000 $ 0 60,000 216,000 276,000 $ 24,000 This solution is obtained by filling in the above schedule with all the known figures and working “from the bottom up” and “from the top down” to the unknown purchase figure. Maximum variable costs that can be incurred, $1,140,000 – $288,000 = maximum purchase costs, or $852,000. Divide $852,000 by 240,000 units, which yields a maximum purchase price of $3.55. 11­38 (25 min.) Closing down divisions. 1. Division A Sales Variable costs of goods sold ($450,000 ´ 0.90; $390,000 ´ 0.95) Variable S,G & A ($100,000 ´ 0.60; $120,000 ´ 0.80) Total variable costs Contribut ion margin $530,000 405,000 60,000 465,000 $...
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