The net benefit equals 440 500 60millio n 1111 1125

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Unformatted text preview: 50 contribution to fixed costs per machine hour, and Model 9 will yield $9.00: Model 9 Selling price Variable costs per unit (total cost – FMOH) Contribut ion margin per unit Relative use of machine­hours per unit of product Contribut ion margin per machine hour $100.00 82.00 $ 18.00 ÷ 2 $ 9.00 Model 14 $70.00 60.50 $ 9.50 ÷ 1 $ 9.50 11­24 (20 min.) Which base to close, relevant­cost analysis, opportunity costs. The future outlay operating costs will be $400 millio n regardless o f which base is clo sed, given the addit ional $100 millio n in costs at Everett if Alameda is closed. Further, one of the bases will permanent ly remain open while the other will be shut down. The only relevant revenue and cost comparisons are a. $500 millio n fro m sale o f the Alameda base. Note that the historical cost of building the Alameda base ($100 millio n) is irrelevant. Note also that future increases in the value o f the land at the Alameda base is also irrelevant. One of the bases must be kept open, so if it is decided to keep the Alameda base open, the Defense Depart ment will not be able to sell this land at a future date. b. $60 millio n in savings in fixed inco me note if the Everett base is closed. Again, the historical cost of building the Everett base ($150 millio n) is irrelevant. The relevant costs and benefits analysis favors closing the Alameda base despite the object ions raised by the California delegat ion in Congress. The net benefit equals $440 ($500 – $60) millio n. 11­11 11­25 (25-30 min.) Closing and opening stores. 1. Solution Exhibit 11­25, Column 1, presents the relevant loss in revenues and the relevant savings in costs fro m closing the Rhode Island store. Lopez is correct that Sanchez Corporation’s operating inco me would increase by $7,000 if it closes down the Rhode Island store. Closing down the Rhode Island store results in a loss of revenues o f $860,000 but cost savings o f $867,000 (from cost of goods sold, rent, labor, utilit ies, and co...
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