Chapter 6 HW

2. The Regal Cycle Company manufactures three types of bicycles—a dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow: 1. What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes?

((-CM)+total fixed expenses)-(depriciation+allocated common fixed expenses)

19. What is the financial advantage (disadvantage) of discontinuing the bilge pump product line?

(-CM) +Advertising +salary +insurance

The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are unavoidable and have been allocated to products based on sales dollars. 6. Assume that Cane normally produces and sells 90,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?

(-revenue from selling product)-total common fixed expenses

What is the financial advantage (disadvantage) of discontinuing the Housekeeping program?

-CM=-105,000 +Liability insurance and program admin salaries=51900 =-53200

21. 2. Suppose Bill gets lucky on his next hunting trip and shoots 16 ducks using the same amount of shotgun shells he used on his previous hunting trip to bag 8 ducks. How much would it have cost him to shoot the last two ducks?

0 cost of last two doesn't change

9. 3. Assuming that Barlow's estimated customer demand is 500 units per product line, what is the maximum contribution margin the company can earn when using the 5,700 pounds of raw material on hand? and 4. A foreign supplier could furnish Barlow with additional stocks of the raw material at a substantial premium over the usual price. Assuming Barlow's estimated customer demand is 500 units per product line and that the company has used its 5,700 pounds of raw material in an optimal fashion, what is the highest price Barlow Company should be willing to pay for an additional pound of materials?

4.Additional pound of material will be utilized to Produce product B. Therefore the highest price that Barlow company is willing to pay for additional pound of material = Regular price + Contribution margin per pound of product B = $8 + $10 = $18 per pound

What is the financial advantage (disadvantage) of making the 73,000 starters instead of buying them from an outside supplier?

73,000*10.7=781,100 -(calculate cost to buy without using rent or depreciation)=730000 =51100

15. Assume that Cane's customers would buy a maximum of 80,000 units of Alpha and 60,000 units of Beta. Also assume that the company's raw material available for production is limited to 160,000 pounds. If Cane uses its 160,000 pounds of raw materials, up to how much should it be willing to pay per pound for additional raw materials?

As current available material is sufficient to meet total demand of Beta product. Therefore extra material will be utilized in production of Alpha Product. Therefore maximum price that Cane company is willing to pay for additional pound of material = Regular price + Contribution margin per pound of alpha = $6 + $10.20 = $16.20

13. Assume that Cane's customers would buy a maximum of 80,000 units of Alpha and 60,000 units of Beta. Also assume that the company's raw material available for production is limited to 160,000 pounds. How many units of each product should Cane produce to maximize its profits?

As raw material quantity is limited, therefore raw material will be utilized first for product providing higher contribution margin per pound. Therefore nos of units of each product to be made to maximize profit; We know that beta has higher contribution margin per unit from previous question. Beta = 60000 units Alpha = (160,000 - 60000*2) / 5 = 8000 units

The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are unavoidable and have been allocated to products based on sales dollars. 10. Assume that Cane expects to produce and sell 50,000 Alphas during the current year. A supplier has offered to manufacture and deliver 50,000 Alphas to Cane for a price of $80 per unit. What is the financial advantage (disadvantage) of buying 50,000 units from the supplier instead of making those units?

Buy: Cost of purchasing: 50,000*80= 4,000,000 Make: Direct mats: 1,500,000 Direct Labor: 1,000,000 Variable MOH: 350,000 traceable fixed MOH: 1,600,000 total cost: 4,450,000 The difference in favor of buying: 450,000

The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are unavoidable and have been allocated to products based on sales dollars. 9. Assume that Cane expects to produce and sell 80,000 Alphas during the current year. A supplier has offered to manufacture and deliver 80,000 Alphas to Cane for a price of $80 per unit. What is the financial advantage (disadvantage) of buying 80,000 units from the supplier instead of making those units?

Buy: Cost of purchasing: 80,000*80= 6,400,000 Make: Direct mats: 2,400,000 Direct Labor: 1,600,000 Variable MOH: 560,000 traceable fixed MOH: 1,600,000 total cost: 6,160,000 The difference in favor of making: 240,000

The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are unavoidable and have been allocated to products based on sales dollars. 8. Assume that Cane normally produces and sells 60,000 Betas and 80,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 15,000 units. What is the financial advantage (disadvantage) of discontinuing the Beta product line?

CM lost if beta is dropped: (2,400,000) +Traceable fixed manufacturing overhead saved 1,800,000 +CM of addl Alpha sales: 765,000 = 165,000

9. 1. Calculate the contribution margin per pound of the constraining resource for each product.

CM per unit /pound per unit(DM/$ per lb)

Which product offers the most profitable use of the plastic injection molding machine?

Calculate CM per unit per constraint (minute in this case) by doing: Selling price per unit -VC per unit =CM per unit /minutes =CM per unit per minute

1. The company chronically has no idle capacity and the old Model B100 machine is the company's constraint. Management is considering purchasing a Model B300 machine to use in addition to the company's present Model B100 machine. The old Model B100 machine will continue to be used to capacity as before, with the new Model B300 machine being used to expand production. This will increase the company's production and sales. The increase in volume will be large enough to require increases in fixed selling expenses and in general administrative overhead, but not in the fixed manufacturing overhead. Based on the information provided above indicate in the appropriate column whether each item is relevant or irrelevant to the decision context described in Case A and Case B.

Check question

Assume the same situation as described in (2) above, except that the company expects to sell 32,000 Rets through regular channels next year. Thus, accepting the U.S. Army's order would require giving up regular sales of 7,000 Rets. Given this new information, what is the financial advantage (disadvantage) of accepting the U.S. Army's special order?

Profit from special order: 61600 +(net profit from 25000 - net profit from 32000):-126000 =-644000

Assume that due to a recession, Polaski Company expects to sell only 25,000 Rets through regular channels next year. A large retail chain has offered to purchase 7,000 Rets if Polaski is willing to accept a 16% discount off the regular price. There would be no sales commissions on this order; thus, variable selling expenses would be slashed by 75%. However, Polaski Company would have to purchase a special machine to engrave the retail chain's name on the 7,000 units. This machine would cost $14,000. Polaski Company has no assurance that the retail chain will purchase additional units in the future. What is the financial advantage (disadvantage) of accepting the special order?

Revenue: 50*7000=294000 -VC: 29*7000=203000 =91000 -14,000 for machine =77000

9. 2. Assuming that Barlow has unlimited demand for each of its three products, what is the maximum contribution margin the company can earn when using the 5,700 pounds of raw material on hand?

best cm margin per constraint * total pounds of raw materials

14. Assume that Cane's customers would buy a maximum of 80,000 units of Alpha and 60,000 units of Beta. Also assume that the company's raw material available for production is limited to 160,000 pounds. What is the maximum contribution margin Cane Company can earn given the limited quantity of raw materials?

maximum contribution margin Cane Company can earn given the limited quantity of raw materials = Contribution margin from alpha + Contribution margin from Beta = (8000 * $51) + (60000*$40) = $2,808,000

11 2. As a separate matter from the special order, assume the company's inventory includes 1,000 units of this product that were produced last year and that are inferior to the current model. The units must be sold through regular channels at reduced prices. The company does not expect the selling of these inferior units to have any effect on the sales of its current model. What unit cost is relevant for establishing a minimum selling price for these units?

relevant costs =variable selling and admin fees

Refer to the original data. Assume again that Polaski Company expects to sell only 25,000 Rets through regular channels next year. The U.S. Army would like to make a one-time-only purchase of 7,000 Rets. The Army would pay a fixed fee of $1.80 per Ret, and it would reimburse Polaski Company for all costs of production (variable and fixed) associated with the units. Because the army would pick up the Rets with its own trucks, there would be no variable selling expenses associated with this order. What is the financial advantage (disadvantage) of accepting the U.S. Army's special order?

rev: 1.8*7000=12600 +Reimbursement of MOH:7*7000=49000 =61600

6. Imperial Jewelers manufactures and sells a gold bracelet for $409.00. The company's accounting system says that the unit product cost for this bracelet is $256.00 as shown below:

revenue -direct material -direct labor -VMOH -additional material -special tool

The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are unavoidable and have been allocated to products based on sales dollars. 7. Assume that Cane normally produces and sells 40,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?

what's gained from stopping production-total common fixed expenses