Gr is planning to reduce the price of econo dog

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Finite Mathematics and Applied Calculus
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Chapter 14 / Exercise 42
Finite Mathematics and Applied Calculus
Costenoble/Waner
Expert Verified
2) GR is planning to reduce the price of Econo-dog collars from $30 to $29 in response tocompetitive pressure from the market. The price reduction would enable it to sell the samequantity of 16,000 as before. GR hopes to counter the price reduction by improving theutilization of direct material and identifying cheaper sources for direct material. These actionsare expected to reduce the direct material cost of Econo-dog collars by $0.60 per collar. What is the estimated expected reduction in total profit from the Econo-dog product line if a) GR uses the product cost information provided by the old DL $ based-system(b) GR uses the product cost information provided by the ABC system A ) The old DL $ based-system:No indirect cost savings will be anticipated given that DL $ is the sole driver of overhead costs. Therefore, estimated expected reduction in profit/unit is = $1 reduction in price minus $0.60 in DM cost = $0.40 per unit. The expected reduction in profit for the entire Econo-Dog product line is 16,000 x 0.4 = $6,400. B ) ABC system:Indirect cost savings of $0.60 per unit =(0.6 x 1) will be anticipated in addition to the DM savings of $0.60 since DM $ is the cost driver for the material-related OH activity pool and the OH cost per $ of DM is $1.00. As a result the expected reduction in profit is = = $1 reduction in price minus ($0.60 in DM cost + $0.60 in DM OH cost) = - $0.20 per unit. other words, an increasein profit of $0.20 will be anticipated. The expected increase in profit for the entire Econo-Dog product line is 16,000 x 0.2 = $3,200.
In
Problem 5 Grinders R Us manufactures and sells two different types of grinders. It sells a regular bench grinder for a unit price of $135 and a professional bench grinder for $200. The perunit variable costs of regular and professional bench grinders are $100 and $ 140, respectively. 10
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Finite Mathematics and Applied Calculus
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Chapter 14 / Exercise 42
Finite Mathematics and Applied Calculus
Costenoble/Waner
Expert Verified
a)Compute contribution margins and contribution margin ratios for regular and professional grinders.
b)The demand for the company’s products is quite good and the company can easilysell as much as 50,000 units of each of these products at current prices. However,there are only 20,000 machine hours of manufacturing capacity available per year.Two regular grinders can be produced in the same average time (1 hour) needed toproduce one professional grinder. Compute the total contribution margin assuming that you produce only the regular grinders for all of the available 20,000hours of machine time. Also compute the total contribution margin assuming that you produce only the professional grinders for all of the available 20,000 hours ofmachine time.

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