Problem 23-3A (30 minutes)
Part 1
INCREMENTAL COST OF MAKING RX5
Variable costs:
Direct materials (50,000 units x $5.00 per unit)………….….……….. $250,000
Direct labor (50,000 units x $8.00 per unit)…………….……….……… 400,000
* Total overhead = 50,000 units x $9.00 per unit = $450,000
INCREMENTAL COST OF BUYING THE PART
Cost per unit to buy……………..………………………..…….…….……….….. $ 18.00
Part 2
Other factors Haver should consider besides cost are:
Will the supplier provide the quality that Haver needs?
Problem 23-4A (30 minutes)
Alternative 1: Sell to a second-hand shop
Incremental revenue (5,000 x $6.00)……………….…………………….….. $ 30,000
Alternative 2: Disassemble and sell to a recycler
Incremental revenue (5,000 x $12.00)…………….………………..…….…. $ 60,000
Incremental income…………………………………………….…………………… $ 28,000
Alternative 3: Rework and sell at regular prices
Incremental revenue (3,000 x $45.00)…………….………………..…….…. $135,000
Decision: Harold should choose alternative 3, as this provides the highest
incremental income.
Financial and Managerial Accounting, 6th Edition
Problem 23-5A (55 minutes)
Part 1
Product G Product B
Selling price per unit…….……………………………………….. $120 $160
Variable costs per unit……………………………………….….. 40 90
Part 2
Sales Mix Recommendation. To the extent allowed by production and
market constraints, the company should produce as much of Product G as
Contribution Margin at Recommended Sales Mix
Contribution margin = 440 units x $80 per unit = $35,200 per month
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Solutions Manual, Chapter 23
0.4 hrs. per unit
1361
Problem 23-5A (Continued)
Part 3
Sales Mix Recommendation with Second Shift. If the second shift is added,
the maximum possible output of G will double
However, this level of output exceeds the company’s market constraint of
600 units of G per month. This means the company should produce 600
units of Product G, and commit the remainder of the productive capacity to
Product B. This is computed as follows
Units of Product G………………………………………………………= 600 units per month
Contribution Margin at This Sales Mix
Units Contr./unit Total
From G………………………………………..…….………...600 $80 $48,000
Management decision. The contribution margin of $40,840 exceeds the
contribution margin of $35,200 generated by one shift alone (see part 2).
Therefore, management should add the second shift.
Financial and Managerial Accounting, 6th Edition
352 hrs. per mo.
0.4 hrs. per unit
1 hr. per unit
Problem 23-5A (Continued)
Part 4
Sales Mix Recommendation. By incurring additional marketing cost, the
company can relax the market constraint for sales of Product G up to the
Units of Product G………………………………………………………= 700 units per month
The output of Product B with 72 production hours is
Units of Product B = = 72 units per month
Contribution Margin at This Sales Mix
Units Contr./unit Total
From G………………………………………..…………….…. 700 $80 $56,000
From B…………..……………………………..…..….……... 72 70 5,040
72 hrs. per mo.
1 hr. per unit
Problem 23-6A (60 minutes)
Part 1
ELEGANT DECOR COMPANY
Analysis of Expenses under Elimination of Department 200
Total Eliminated Continuing
Expenses Expenses Expenses
Cost of goods sold………….…………………………….$469,000 $207,000 $262,000
Sales salaries*…………..…………..….….…….………104,000 52,000 52,000
Rent expense…………………………………….………..14,160 14,160
Bad debts expense…………..………………………….18,000 8,100 9,900
Office salary*………………….…….…….….……….….31,200 31,200
*Computation notes. Closing Department 200 will eliminate 70% of its insurance
expense and 25% of its miscellaneous office expense. Sales salaries will be
Financial and Managerial Accounting, 6th Edition
Problem 23-6A (Continued)
Part 2
ELEGANT DECOR COMPANY
Forecasted Annual Income Statement
Under Plan to Eliminate Department 200
Sales……………..……………………………..………………………………………….….$436,000
Depreciation of store equipment…………………………………………….….. 8,300
Sales salaries………….……………………………….…………………….……….… 67,600*
Rent expense………..……………………………….………………………………….. 14,160
Bad debts expense…………….……………………………….…..….…….………. 9,900
Office salary……….……………………………….…………………….……….…….. 15,600*
* Administrative salary reassignment
Total Sales Office
Salaries Salaries Salary
Salesclerks……………………………………………………………….$52,000 $52,000
Problem 23-6A (Continued)
Part 3
ELEGANT DECOR COMPANY
Reconciliation of Combined Income With Forecasted Income
Combined net income …………..……………………………….…….……….…..$ 37,440
Less Dept. 200’s lost sales……………………………………….….……….……(290,000)
ANALYSIS
Department 200’s avoidable expenses of $284,070 are $5,930 less than its
Financial and Managerial Accounting, 6th Edition
PROBLEM SET B
Problem 23-1B (45 minutes)
WINDMIRE COMPANY
COMPARATIVE INCOME STATEMENTS
(1) (2) (3)
Normal New
Volume Business Combined
Sales……………..……………………………….…...$1,200,000 $172,000 $1,372,000
Costs and expenses
Selling expenses………….……….…….….…. 120,000 120,000
Administrative expenses………….…….….. 80,000 4,000 84,000
Supporting computations
Normal direct material cost……………….……………...……………..$384,000
Units of output……………………………………………………………..….300,000
Cost per unit………………………………………………..………………....$ 1.28
Units of output……………………………………………………………..….300,000
Cost per unit………………………………………………..………………....$ 0.32
Overtime per unit (50%)……………..……………………………………. 0.16
New business direct labor cost per unit……..……...…………….$ 0.48
New business volume………..…………………………………………….50,000
Cost per unit………………………………………………..………………....$ 0.72
New business volume………..…………………………………………….50,000
New business variable overhead cost………………………….……$ 36,000
Problem 23-2B (50 minutes)
Part 1
MERVIN COMPANY
COMPARATIVE INCOME STATEMENTS
(a) (b) (c)
Normal New
Volume Business Combined
Sales……………..…………………….……..$4,400,000 $300,000 $4,700,000
Costs and expenses
Overhead………………………….……….1,375,000 100,000 1,475,000
Selling expenses………….…….…….. 275,000 20,000 295,000
Administrative expenses….…........ 550,000 700 550,700
Supporting computations
Normal sales revenue (550,000 x $8)………………………. $4,400,000
New business volume………..………………………..………… 50,000
New business direct materials cost………………………... $ 75,000
Normal direct labor cost…………………………………..……. $1,100,000
Units of output…………………………………………….………… 550,000
Financial and Managerial Accounting, 6th Edition