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Test Bank for ISV Managerial Accounting, Fourth EditionSolution 137(15–20 min.)Ex. 138Movie House Company has 4,000 machine hours available to produce either Product 22 orProduct 44. The cost accounting department developed the following unit information for eachproduct:Product 22Product 44Sales price$20$40Direct materials58Direct labor32Variable manufacturing overhead45Fixed manufacturing overhead35Machine time required15 minutes60 minutesInstructionsManagement wants to know which product to produce in order to maximize the company’sincome. Taking into consideration the constraints under which the company operates, prepare areport to show which product should be produced and sold.6 - 26
Cost-Volume-Profit Analysis: Additional IssuesEx. 139PHR Company manufactures and sells two products. Relevant per unit data concerning eachproduct are given below:ProductStandardDeluxeSelling price$50$75Variable costs$24$30Machine hours23Instructions(a)Compute the contribution margin per unit of limited resource for each product.(b)If 1,000 additional machine hours are available, which product should be manufactured?Ex. 140The following CVP income statements are available for Antique Company and ContemporaryCompany.Antique CompanyContemporary CompanySales revenue$700,000$700,000Variable costs350,000140,000Contribution margin350,000560,000Fixed costs150,000360,000Net income$200,000$200,000Instructions(a)Compute the degree of operating leverage for each company.(b)Assume that sales revenue decreases by 20%. Prepare a CVP income statement for eachcompany.Solution 140(15–20 min.)