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Chapter 12 Homework Solutions

# Chapter 12 Homework Solutions - Exercise128 (10%\$2,400,000...

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Exercise 12-8   Contribution margin lost if the Bath Department is dropped: Lost from the Bath Department .......................................... \$700,000 Lost from the Kitchen Department (10%  ×  \$2,400,000) .....   240,000     Total lost contribution margin ................................................ 940,000 Less avoidable fixed costs (\$900,000 – \$370,000) ...............   530,000     Decrease in overall operating income ................................... \$410,000

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Exercise 12-9   Relevant Costs Item Make Buy Direct materials (60,000 @ \$4.00) ............... \$240,000 Direct labour (60,000 @ \$2.75) ................... 165,000 Variable manufacturing overhead  (60,000 @ \$0.50) ...................................... 30,000 Fixed manufacturing overhead, traceable  (1/3 of \$180,000) ....................................... 60,000 Cost of purchasing from outside supplier  (60,000 @ \$10) .........................................                         \$600,000 Total cost ..................................................... \$495,000 \$600,000 The two-thirds of the traceable fixed manufacturing overhead costs that  cannot be eliminated, and all of the common fixed manufacturing overhead  costs, are irrelevant. The company would save \$105,000 per year by continuing to make the  parts itself. In other words, profits would decline by \$105,000 per year if the  parts were purchased from the outside supplier.
Exercise 12-10  1. Monthly profits would be increased by \$9,000:

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