CostExercise11

CostExercise11 - Ahmed Souary 11-18 Multiple choice. 1. (b)...

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Unformatted text preview: Ahmed Souary 11-18 Multiple choice. 1. (b) Special order price per unit $6.00 Variable manufacturing cost per unit 4.50 Contribution margin per unit $1.50 Effect on operating income = $1.50 × 20,000 units = $30,000 increase 2. (b) Costs of purchases, 20,000 units × $60 $1,200,000 Total relevant costs of making: Variable manufacturing costs, $64 – $16 $48 Fixed costs eliminated 9 Costs saved by not making $57 Multiply by 20,000 units, so total costs saved are $57 × 20,000 1,140,000 Extra costs of purchasing outside 60,000 Minimum overall savings for Reno 25,000 Necessary relevant costs that would have to be saved in manufacturing Part No. 575 $ 85,000 11-23 Selection of most profitable product. Only Model 14 should be produced. The key to this problem is the relationship of manufacturing overhead to each product. Note that it takes twice as long to produce Model 9; machine-hours for Model 9 are twice that for Model 14. Management should choose the product mix that maximizes operating income for a given production capacity (the scarce resource in this situation). In this case, Model 14 will yield a $9.50 contribution to fixed costs per machine hour, and Model 9 will yield $9.00: Model 9 Model 14 Selling price Variable costs per unit Contribution margin per unit Relative use of machine-hours per unit of product Contribution margin per machine hour $100.00 82.00 $ 18.00 ÷ 2 $ 9.00 $70.00 60.50 $ 9.50 ÷ 1 $ 9.50 11-23 Excel Application...
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This note was uploaded on 06/23/2011 for the course BUS 2B taught by Professor Hayle during the Spring '11 term at El Camino.

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CostExercise11 - Ahmed Souary 11-18 Multiple choice. 1. (b)...

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