Managerial Acct- Answers - Sample Final Exam.docx

Now compare this opportunity cost with opportunity

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Now compare this opportunity cost with opportunity benefit.
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Deluxe (Northland’s offer) Selling price (per batch) $925 (= $18.50 x 50) Less variable cost (per batch): Direct material 550 (= $11 x 50) 50 x 12 Direct labor: $12 x 60 + 2 144 Shipment: $15 x 1 15 Contribution margin per batch $216 DLH required per batch 12 Contribution margin per DLH $18 Opportunity benefit = $216 per batch * 2000/50 batches = $8,640. Therefore, accept. Orion should accept this offer because it offers a higher contribution margin per DLH than the Deluxe model. However, Orion should also consider other factors such as whether the Northlands arrangement will continue in the long run, and how its regular customers will react to the lower price offered to Northlands. C. Now all three orders will be produced because each model is profitable in the short-run. In the long-run, Orion has to evaluate the full cost. 4. a . Relevant costs (2 months) Close Open Variable costs 0 $224,000 = (8,000*$14*2) FOH costs $210,000 300,000 Selling costs 54,000 60,000 Startup cost 8,000 --- Total relevant costs $272,000 $584,000 Relevant revenues --- $352,000 Net cost $272,000 $232.000 Leave the plant open. b. 272,000 = 360,000 + x * $14 - x * $22 i.e. equate the net benefits under both alternatives x = 11,000 units for two months c. lost customers if plant is closed, morale of workers, etc.
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5. Barker Company has a single product called Zet. The company normally produces and sells 80,000 Zets each year at a selling price of $40 per unit. The company’s unit costs at this level of activity are given below: Direct materials $ 9.50 Direct labor 10.00 Variable manufacturing overhead 2.80 Fixed manufacturing overhead 5.00 ($400,000 total) Variable selling expenses 1.70 Fixed selling expenses 4.50 ($360,000 total) Total cost per unit $33.50 A number of questions relating to the production and sale of Zets are given below. Each question is independent. a. Assume that Barker Company has sufficient capacity to produce 100,000 Zets each year without any increase in fixed manufacturing overhead costs. The company could increase sales by 25% above the present 80,000 units each year if it were willing to increase the fixed selling expenses by $150,000. Would the increased fixed expenses be justified? b. Assume again that Barker Company has sufficient capacity to produce 100,000 Zets each year. The company has an opportunity to sell 20,000 units in an overseas market. Import duties, foreign permits, and other special costs
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associated with the order would total $14,000.
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