We nextuse the trialanderror method to check the

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Unformatted text preview: maining divisio ns. Management may also want to consider the impact on the morale o f the remaining emplo yees if Divisio n D is closed. Talented emplo yees may beco me fearful o f losing their jobs and seek emplo yment elsewhere. 11­32 11­39 (25 min.) Product mix, constrained resource. 1. Selling price Variable costs: Direct materials (DM) Labor and other costs Total variable costs Contribut ion margin 1 Pounds of DM per unit Contribut ion margin per lb. 1 A110 $84 24 28 52 $32 ÷8 lbs. $ 4 per lb. = B382 $ 56 15 27 42 $ 14 ÷5 lbs. $2.80 per lb. C657 $70 9 40 49 $21 ÷ 3 lbs. $ 7 per lb. A110: Direct material cost per unit Cost per pound of Bistide $24 $3 = 8 lb. per unit B382: Direct material cost per unit Cost per pound of Bistide Direct material cost per unit Cost per pound of Bistide = $15 $3 $9 $3 = 5 lb. per unit C657: = = 3 lb. per unit First, satisfy minimum requirements. A110 B382 Minimum units 200 200 Times pounds per unit ×8 lb. per unit ×5 lb. per unit Pounds needed to produce minimum units 1,600 lb. 1,000 lb. C657 200 ×3 lb. per unit 600 lb. Total 3,200 lb. The remaining 1,800 pounds (5,000 ─ 3,200) should be devoted to C657 because it has the highest contribution margin per pound of direct material. Since each unit of C657 requires 3 pounds of Bist ide, the remaining 1,800 pounds can be used to produce another 600 units of C657. The fo llowing co mbinat ion yields the highest contribut ion margin given the 5,000 pounds constraint on availabilit y of Bist ide. A110: 200 units B382: 200 units C657: 800 units (200 minimum + 600 extra) 11­33 2. The demand for West ford’s products exceeds the materials available. Assuming that fixed costs are covered by the original product mix, Westford should be willing to pay upto an addit ional $7 per pound (the contribution margin per pound of C657) for another 1,000 pounds 1 of Bist ide. That is, Westford should be willing to pay $3 + $7 = $10 per pound of Bist ide . This cost assumes that sufficient demand exi...
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This note was uploaded on 10/11/2010 for the course ACCT 321 taught by Professor Cole during the Spring '10 term at University of Miami.

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