and buys the part for 60 income will decrease by 4000 1000 units x 400 in

And buys the part for 60 income will decrease by 4000

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and buys the part for $60, income will decrease by $4,000 (1,000 units x $4.00 in additional cost per unit).34.(LO 2 – Outsourcing decision)They should accept the offer of $125,000. Outsourcing will allow the company to avoid $150,000 of labor costs. The depreciation and
allocated overhead costs are not avoidable and not relevant to the decision. Relevant cost of outsourcing:- Amount paid to Robyn Maintenance$125,000Relevant cost of doing themselves:- Current cost to make$150,000- Less: Unavoidable FC(20,000)130,000Incremental cost of doing themselves$ 5,00037.(LO 3 – Impact of dropping a product line)If painted rockers are dropped, overall operating profit will not be affected as follows:Decrease in overall CM($15,000)Decrease in FC *15,000Overall decrease in operating income$ *A decrease in FC equates to an increase in profitSince the contribution margin lost is exactly equal to the avoidable fixed costs, overall profit will not change.38.(LO 3 – Basic drop a segment decision)If the Portland segment is eliminated, the company’s overall income will decrease by $20,000 as follows:Decrease in overall CM($25,000)Decrease in FC *5,000Overall decrease in operating income($20,000)*A decrease in FC equates to an increase in profitSince the contribution margin lost is greater than the avoidable fixed costs,overall profit will decrease.39.(LO 4 – Basic limited resource decision)To maximize profits, the company should produce the product with the highest contribution margin per unit of limited resource. In this case, they should produce Compact Disc 1 which has a CM/machine hour of $4.0
Compact Disc 1Compact Disc 2Selling price $ 10$ 20Variable cost(2)(4)Contribution margin816÷ machine hours per disc÷ 2÷ 5CM per machine hour$ 4.00$ 3.2Although not required to answer the problem, notice that the maximum netincome Kerrie would be able to have is $160,000.Sales [(100,000 mach. hrs/2 hrs) x $10]$500,000Less: Variable costs (50,000 x $2)(100,000)Less: Fixed costs(240,000)Maximum net income$160,000
41.(LO 4 – Maximizing CM given a limited resource)

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