In addition to cost considerations bronson should

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4. In addition to cost considerations, Bronson should take into account the following factors:a) The ability of the supplier to meet required delivery schedules.b) The quality of the cartridges purchased from the supplier.c) Alternative uses of the capacity that is used to make the cartridges.d) The ability of the supplier to supply cartridges if volume increases in future years.e) The problem of alternative sources of supply if the supplierproves undependable.
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Problem 10-24A1.Selling price per unit.................$40Variable expenses per unit*......24Contribution margin per unit.....$16*$9.50 + $10.00 + $2.80 + $1.70 = $24.00Increased unit sales (80,000 × 25%).............20,000Contribution margin per unit..........................×$16Incremental contribution margin...................$320,000Less added fixed selling expense...................150,000Incremental net operating income.................$170,000Yes, the increase in fixed selling expense would be justified.2.Variable production cost per unit...................$22.30Import duties, etc. ($14,000 ÷ 20,000 units)...........................................................0.70Shipping cost per unit....................................1.50Break-even price per unit..............................$24.50
3. If the plant operates at 25% of normal levels, then only 5,000units will be produced and sold during the three-month period:80,000 units per year × 3/12 = 20,000 units.20,000 units × 25% = 5,000 units produced and sold.Given this information, the simplest approach to the solution is:Contribution margin lost if the plant is closed (5,000 units × $16 per unit*).......$(80,000)Fixed costs that can be avoided if the plant is closed:Fixed manufacturing overhead cost ($400,000 × 3/12 = $100,000;$100,000 × 40%)..............................$40,000Fixed selling cost ($360,000 × 3/12 = $90,000; $90,000 × 1/3)....................30,00070,000Net disadvantage of closing the plant.......$(10,000)*$40.00 – ($9.50 + $10.00 + $2.80 + $1.70) = $16.00Profits would decline by $10,000 if the plant is closed.
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Problem 10-24A (continued)Alternative approach:Keep thePlantOpenClose thePlantSales (5,000 units × $40 per unit)...$ 200,000$ 0Variable expenses (5,000 units × $24 per unit)..........120,0000Contribution margin.........................80,0000Fixed expenses:Fixed manufacturing overhead cost:$400,000 × 3/12.........................100,000$400,000 × 3/12 × 60%.............60,000Fixed selling expense:$360,000 × 3/12.........................90,000$360,000 × 3/12 × 2/3...............60,000Total fixed expenses........................190,000120,000Net operating income (loss)............$(110,000)$(120,000)4. The relevant cost is $1.70 per unit, which is the variable selling expense per Zet. Since the blemished units have already been produced, all production costs (including the variable production costs) are sunk. The fixed selling expenses are not relevant since they will remain the same regardless of whether or not the blemished units are sold. The variable selling expense may or may not be relevant—depending on how the blemished units are sold. For example,the units may be sold through a liquidator without incurring the normal variable selling expense.5. The costs that can be avoided by purchasing from the outside supplier are relevant. These costs are:Variable production costs.......................................$22.30Fixed manufacturing overhead cost ($400,000 × 70% = $280,000; $280,000 ÷ 80,000 units).......3.50Variable selling expense ($1.70 × 60%)................1.02Total avoidable cost................................................$26.82To be acceptable, the outside manufacturer’s quotation must
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be lessthan $26.82 per unit.
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