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# 226 correct answer a if the company can produce all

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decline in the company’s operating profit (\$7,000 - \$1,000). 226. Correct answer a. If the company can produce all the units required (no constraint), the prime consideration should be the product’s contribution margin. If production is constrained by the number of machine hours, the company should focus on the contribution margin per machine hour. 227. Correct answer b. The maximum net profit Elgers can earn is \$67,200 as shown below. Contribution \$160,000 [40,000 x (\$12 - \$8)] Fixed costs 48,000 Operating profit 112,000 Tax @ 40% 44,800 Net profit \$ 67,200

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307 228. Correct answer a. If Dayton sold 30,000 units, the net income would be \$24,000. Contribution \$90,000 [30,000 x (\$10 - \$7)] Fixed costs 42,000 Gross profit 48,000 Tax @50% 24,000 Net income \$24,000 229. Correct answer b. If Raymund installs the automated process, the monthly operating income would be \$10,000 as shown below. Reduction in variable costs: (\$50,000 ÷ 5,000) = \$10 - \$5 = \$5 Sales \$100,000 Variable manufacturing 25,000 (\$5 x 5,000) Variable selling 15,000 Contribution 60,000 Fixed manufacturing 46,000 Fixed selling 4,000 Operating income \$ 10,000 230. Correct answer c. The only combination of factors that is correct is a variable cost ratio of 32% and operating income of \$9,600,000. Variable cost ratio: \$60 – (\$60 x .2) = \$48 ÷ \$150 = 32% Contribution margin \$17,850,000 [175,000 x (\$150 - \$48)] Fixed costs* 8,250,000 Operating income \$ 9,600,000 *Current fixed costs \$9,000 (\$60 x 150,000) - \$750,000 eliminated 231. Correct answer b. The relevant contribution margins per machine hour are Product A \$18.50 and Product B \$16.00 as shown below. Product A: \$100 - \$53 - \$10 = \$37 ÷ 2 hours = \$18.50 Product B: \$80 - \$45 - \$11 = \$24 ÷ 1.5 hours = \$16.00 232. Correct answer a. Lark should make 30,000 units of Product A, 14,000 units of Product B (utilizing the remaining machine hours), and outsource 6,000 units of Product B because this alternative makes the greatest contribution as shown below. Hours: (30,000 A units x 3 hours) = 90,000 hours 160,000 hours – 90,000 hours = 70,000 hours remaining 70,000 ÷ 5 hours for B unit = 14,000 units of Product B Contribution: = [(\$75 - \$30) x 30,000] + [(\$125 - \$48) x 14,000] + [(\$125 - \$60) x 6,000] = \$1,350,000 + \$1,078,000 + \$390,000 = \$2,818,000
308 233. Correct answer a. Aspen should utilize the internal hours to manufacture 12,000 units of Product XT because the total contribution is greater than the contribution for Product RP. Product XT: (\$60 - \$37 - \$12 - \$6) x 12,000 = \$60,000 Product RP: (\$45 - \$24 - \$13 - \$3) x 8,000 = \$40,000 234. Correct answer a. The demand curve would shift to the left (fewer bagels demanded) if the cost of muffins decreased making muffins more desirable. 235. Correct answer b. An increase in consumer income would increase demand and cause a shift to the right. An increase in price is movement along the curve to a higher price. 236. Correct answer c. If the demand for a product is elastic, a percentage change in price results in a larger percentage change in demand. If the product price is increased, the demand will decrease by a larger percentage resulting in a decrease in total revenue. 237. Correct answer a. Full costing does not simplify the identification of unit fixed costs with specific products. No matter what the costing method, fixed costs are generally arbitrarily allocated to products on a basis such as direct labor hours or machine hours.

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