Week 1 Master

Week 1 Master - Week1Master 1132 Opportunitycosts.

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Week 1 Master 11-32 Opportunity costs. (Please alert students that in some printed versions of the book there is  a typographical error in the first line of requirement 2. “Wolverine”  should be replaced by “Wild Boar.”) 1. The opportunity cost to Wild Boar of producing the 3,500 units of  Orangebo is the contribution margin lost on the 3,500 units of Rosebo that  would have to be forgone, as computed below: Selling price Variable costs per unit:   Direct materials   Direct manufacturing labor   Variable manufacturing overhead   Variable marketing costs Contribution margin per unit Contribution margin for 3,500 units ($14  × 3,500 units) $       26 $ 5 1 4    2          12 $       14 $49,000 The opportunity cost is $49,000. Opportunity cost is the maximum  contribution to operating income that is forgone (rejected) by not using a  limited resource in its next-best alternative use.  
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2. Contribution margin from manufacturing 3,500 units of Orangebo and  purchasing 3,500 units of Rosebo from Buckeye is $52,500, as follows: Manufact ure Orangebo Purchase Rosebo Total Selling price Variable costs per unit: Purchase costs Direct materials Direct manufacturing labor Variable manufacturing costs Variable marketing overhead Variable costs per unit Contribution margin per unit Contribution margin from selling  3,500 units of Orangebo and  3,500 units of Rosebo ($9  ×  3,500 units; $6  ×  3,500  units) $      20 5 1 4            1          11 $         9 $31,500 $      26 18            2          20 $         6 $21,000 $52,500 As calculated in requirement 1, Wild Boar’s contribution margin from 
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This note was uploaded on 05/12/2011 for the course ACCT 433a taught by Professor Alfredcontreras during the Spring '11 term at National.

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Week 1 Master - Week1Master 1132 Opportunitycosts.

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