June2017SupportPackage.pdf

# Marginal cost 480 300 180 303 200 correct answer a if

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Marginal cost = \$480 - \$300 = \$180

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303 200. Correct answer a. If the total cost is \$800 and average variable cost is \$5 per unit, the average fixed cost is \$3 per unit. (\$5 x 100 units) + (A x 100 units) = \$800 100A = \$300 A = \$3 201. Correct answer b. Crawford’s marginal cost of the 23 rd unit is \$40 as shown below. Marginal cost = \$1,330 - \$1,290 = \$40 202. Correct answer c. The level that would produce the highest operating income for Parker is 14 units as shown below. 8 units: 8(\$100,000 - \$50,000) - \$400,000 = 0 10 units: 10(\$100,000 - \$50,000) - \$400,000 = \$100,000 14 units: 14(\$100,000 - \$45,000) - \$600,000 = \$170,000 17 units: 17(\$100,000 - \$45,000) - \$800,000 = \$135,000 203. Correct answer c. If Johnson accepted the special order, the company’s operating income would increase by \$37,500 as shown below. Special order price \$2.50 Less variable cost* 5.00 Contribution margin \$2.50 Contribution to operating income: 15,000 x \$2.50 = \$37,500 *Fixed costs and selling costs are not relevant 204. Correct answer c. If the Robo Division submits a bid for \$8,000,000, the division will lose \$500,000 but GMT will gain \$1,700,000 as the transfer price is nor relevant to GMT. Robo Division: \$8,000,000 - \$3,700,000 - \$4,800,000 = (\$500,000) GMT Industries: \$8,000,000 - \$1,500,000 - \$4,800,000 = \$1,700,000 205. Correct answer b. BCC should submit a bid of \$772 per unit as this price covers all incremental costs. Material \$500 Direct labor 240 (\$20 x 12) Variable overhead 24 (\$2 x 12) Administrative costs 8 Bid price \$772 206. Correct answer d. When making a special order decision, Bedford would need to cover incremental costs which include variable costs of the product (I) and direct fixed costs of the order (III). In addition, Bedford should consider if there is a more beneficial use of the idle capacity, the opportunity cost of the decision (IV).
304 207. Correct answer a. Since Raymund has idle capacity, the company needs to cover only the incremental variable costs of \$10 (\$50,000 ÷ 5,000) per unit so this should be the bid price to gain a new customer. 208. Correct answer b. The price that Hickory paid for the 4,500 pounds of Kaylene (\$3.40/lb.) is irrelevant; it is a sunk cost. The future price of Kaylene (\$4.05/lb.) is relevant to future operations. 209. Correct answer b. The minimum price that Gardner should charge for the special order is \$96.50 per unit. This price covers the variable cost of KT-6500 plus the forgone contribution from Product XR-2000 as shown below. Hours required for 1,000 units of KT-6500 3,000 hours Units of XR-2000 not produced: 3,000 hours ÷ 4 750 units XR-2000 contribution: \$105 - \$24 - \$10 - \$5 - \$4 \$62 per unit KT-6500 bid price: = [(750 x \$62) ÷ 1m000] + \$27 +12 +\$6 + \$5 = \$46.50 + \$27 + \$12 + \$6 + \$5 = \$96.50 210. Correct answer a. Green should accept the offer of \$280,000 as it will cover all incremental costs and increase operating profit. Selling price \$280,000 Direct material 66,000 Direct labor 120,000 Variable overhead 48,000 (.4 x \$120,000) Administrative costs 12,000 (.1 x \$120,000) Contribution \$ 34,000 211. Correct answer c. The option (a) of purchasing externally is more costly the manufacturing internally, because Fixed OH costs are not avoidable. The option (b) is not possible due to the capacity restrictions. This leaves options (c) and (d), with option (d) being more costly than (c).

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