All these steps there is continued pressure to

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all these steps, there is continued pressure to understate environmental costs, Bush should consider resigning from the company and not engage in unethical behavior. 3-49 (35 min.) Deciding where to produce. Peoria Moline Selling price $150.00 $150.00 Variable cost per unit Manufacturing $72.00 $88.00 Marketing and distribution 14.00 86.00 14.00 102.00 Contribution margin per unit (CMU) 64.00 48.00 Fixed costs per unit Manufacturing 30.00 15.00 Marketing and distribution 19.00 49.00 14.50 29.50 Operating income per unit $ 15.00 $ 18.50 CMU of normal production (as shown above) $64 $48 CMU of overtime production ($64 $3; $48 $8) 61 40 1. Annual fixed costs = Fixed cost per unit Daily production rate Normal annual capacity ($49 400 units 240 days; $29.50 320 units 240 days) $4,704,000 $2,265,600 Breakeven volume = FC CMU of normal production ($4,704,000 $64; $2,265,600 48) 73,500 units 47,200 Units 2. Units produced and sold 96,000 96,000 Normal annual volume (units) 96,000 76,800 Units over normal volume (needing overtime) 0 19,200 CM from normal production units (normal annual volume CMU normal production) $6,144,000 $3,686,400 CM from overtime production units (0; 19,200 $40) 0 768,000 Total contribution margin 6,144,000 4,454,400 Total fixed costs 4,704,000 2,265,600 Operating income $1,440,000 $2,188,800 Total operating income $3,628,800
3-43 3. The optimal production plan is to produce 120,000 units at the Peoria plant and 72,000 units at the Moline plant. The full capacity of the Peoria plant, 120,000 units (400 units × 300 days), should be used because the contribution from these units is higher at all levels of production than is the contribution from units produced at the Moline plant. Contribution margin per plant: Peoria, 96,000 × $64 $ 6,144,000 Peoria 24,000 × $64 $3 1,464,000 Moline, 72,000 × $48 3,456,000 Total contribution margin $11,064,000 Deduct total fixed costs 6,969,600 Operating income $ 4,094,400 The contribution margin is higher when 120,000 units are produced at the Peoria plant and 72,000 units at the Moline plant. As a result, operating income will also be higher in this case since total fixed costs for the division remain unchanged regardless of the quantity produced at each plant.
3-44 Chapter 3 Video Case The video case can be discussed using only the case writeup in the chapter. Alternatively, instructors can have students view the videotape of the company that is the subject of the case. The videotape can be obtained by contacting your Prentice Hall representative. The case questions challenge students to apply the concepts learned in the chapter to a specific business situation. STORE 24: Cost-Volume-Profit Analysis 1. Customers who might be attracted to money order services include those new to the location who don’t have a bank checking account, or those who do not wish to establish a relationship with a bank for financial services. In the Northeast, Store 24 operates in neighborhoods with large immigrant populations whose members have yet to open bank checking accounts. These customers are also likely to buy Store 24’s other products once they are in the store. 2. Contribution margin per unit: Selling price: 79.0 cents Deduct: Direct labor 22.5 cents ($9.00 per hour/60 minutes) × 1.5 minutes Processing fee 6.0 cents Contribution margin 50.5 cents per unit 3. Equation method formula: Revenues Variable costs Fixed costs (FC) = Operating income (OI) Where (Unit selling price × quantity (Q)) (Unit variable costs × Q) Fixed costs = OI (0.79Q) ((0.225 +0.06)Q) $30.00 = $0 0.505Q $30.00 = $0 0.505Q = $30.00 Q = $30.00/0.505 = 59.41 money orders (approximately 2 per day)

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