acc_433b___solutions_to_hw_1

acc_433b___solutions_to_hw_1 - ACC 433B Solutions to HW 1...

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ACC 433B Solutions to HW 1 11-32 Opportunity costs. 1. The opportunity cost to Wolverine of producing the 2,000 units of Orangebo is the contribution margin lost on the 2,000 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 2,000 units $20 $ 2 3 2 4 11 $ 9 $ 18,000 The opportunity cost is $18,000. 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. 2. Contribution margin from manufacturing 2,000 units of Orangebo and purchasing 2,000 units of Rosebo from Buckeye is $16,000, as follows: Manufacture 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 2,000 units of Orangebo and 2,000 units of Rosebo $15 2 3 2 2 9 $ 6 $12,000 $20 14 4 18 $ 2 $4,000 $16,000 As calculated in requirement 1, Wolverine’s contribution margin from continuing to manufacture 2,000 units of Rosebo is $18,000. Accepting the Miami Company and Buckeye offer will cost Wolverine $2,000 ($16,000 – $18,000). Hence, Wolverine should refuse the Miami Company and Buckeye Corporation’s offers. 3.
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acc_433b___solutions_to_hw_1 - ACC 433B Solutions to HW 1...

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