Problem 23-2B (concluded)
Total overhead……………….……………….…..………..………. $1,375,000
Fixed overhead (20%)………….………………..……………….. 275,000
New business variable overhead cost…………………….. $ 100,000
Total selling expenses…….……………..……...…………..…. $ 275,000
Fixed selling expenses (60%)………..……………………..... 165,000
Variable selling expenses……………………..……....………. 110,000
Part 2
Based on the financial analysis above, Mervin should accept the order. The
order provides additional income of $4,300. Other factors that Mervin
Part 3
If the new customer demands 100,000 units instead of 50,000, this will
mean that Mervin will lose sales of 50,000 units at the regular price. They
Problem 23-3B (30 minutes)
Part 1
INCREMENTAL COST OF MAKING TH1
Variable costs:
Direct materials (400,000 units x $1.20 per unit)…………………..………….$ 480,000
Direct labor (400,000 units x $1.50 per unit)…………….……….….………….600,000
INCREMENTAL COST OF BUYING THE PART
Cost per unit to buy……………..…………….………………………….………….……..
$ 4.00
Part 2
Other factors Alto should consider besides cost are:
Will the supplier provide the quality that Alto needs?
Financial and Managerial Accounting, 6th Edition
Problem 23-4B (45 minutes)
Alternative 1: Sell to a wholesaler
Incremental revenue (7,500 x $75.00)…………….………………………….…….…
$ 562,500
0
Incremental income……………………………………………….…………………..……..
Alternative 2: Disassemble and sell to a recycler
Incremental revenue (7,500 x $130.00)…………..…………………..……..…….…
$ 975,000
Incremental cost………….………………….…………………………………..…….…..…
400,000
Incremental income……………………………………………….…………………..……..
Alternative 3: Rework and sell at regular prices
Incremental revenue (7,500 x $500.00)…………..…………………..……..…….…
$3,750,000
3,200,000
Incremental income……………………………………………….…………………..……..
Decision: Micron should choose alternative 2, as this provides the highest
incremental income.
Problem 23-5B (55 minutes)
Part 1
Product R Product T
Selling price per unit…….………………….……………..…….. $ 60 $ 80
Variable costs per unit…………………..……………..……….. 20 45
Part 2
Sales Mix Recommendation To the extent allowed by production and
market constraints, the company should produce as much of Product R as
possible. With a single shift yielding 176 hours per month (8 x 22), the
company can produce these units of Product R:
Contribution Margin at Recommended Sales Mix
Financial and Managerial Accounting, 6th Edition
176 hrs. per mo.
0.4 hrs. per unit
Problem 23-5B (Continued)
Part 3
Sales Mix Recommendation with Second Shift If the second shift is added,
the maximum possible output of R will double:
However, this level of output exceeds the company’s market constraint of
550 units of Product R per month. This means the company should
produce 550 units of Product R, and commit the remainder of the
productive capacity to Product T. This is computed as follows:
Units of Product R…………..…………………..……….…………. = 550 units per month
The output of Product T with 132 production hours is
Contribution Margin at This Sales Mix
Units Contr./unit Total
From R…………..………………………………..…………… 550 $40 $22,000
From T……………….…………………..………..………….. 132 35 4,620
Less extra shift costs……………..………….….…….. (3,250)
Total contribution margin………………………….….. $23,370
Management decision This amount of $23,370 exceeds the contribution
margin of $17,600 generated by one shift alone (see part 2). Therefore,
management should add the second shift.
©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not
authorized for sale or distribution in any manner. This document may not be copied, scanned,
duplicated, forwarded, distributed, or posted on a website, in whole or part.
Solutions Manual, Chapter 23
352 hrs. per mo.
0.4 hrs. per unit
132 hrs. per mo.
1.0 hrs. per unit
1373
Problem 23-5B (Continued)
Part 4
Sales Mix Recommendation By incurring additional marketing cost, the
company can relax the market constraint for sales of Product R up to the
Units of Product R…………..…………………..……….…………. = 675 units per month
Hours per unit………………..…………………..……….………….. 0.4
The output of Product T with 82 production hours is
Contribution Margin with This Sales Mix
Units Contr./unit Total
From R…………..………………………………..…………… 675 $40 $27,000
From T……………….…………………..………..………….. 82 35 2,870
Management decision This amount of $22,120 is less than the contribution
margin of $23,370 generated under the existing market constraint (see part
3). Therefore, management should not undertake this marketing strategy.
Financial and Managerial Accounting, 6th Edition
1374
Problem 23-6B (60 minutes)
Part 1
ESME COMPANY
Analysis of Expenses under Elimination of Department Z
Total Eliminated Continuing
Expenses Expenses Expenses
Cost of goods sold………….………………..…….…….$586,400 $125,100 $461,300
Direct expenses
Allocated expenses
Sales salaries*…………..……………..….….………….93,600 46,800 46,800
Rent expense………………………………………….…..27,600 27,600
Bad debts expense…………..………………………….25,000 4,000 21,000
Computation Notes Closing Department Z will eliminate 65% of its insurance
expense and 30% of its miscellaneous office expense. Sales salaries will be
Problem 23-6B (Continued)
Part 2
ESME COMPANY
Forecasted Annual Income Statement
Under Plan to Eliminate Department Z
Advertising………….……………………………………………………..…………... 27,000
Store supplies used………..…………………………………..…….………….… 5,600
Depreciation of store equipment…………………………….……….………. 21,000
Sales salaries………….…………………..……………..…………………..………. 59,800*
Total operating expenses..…………………..…………….………….………….. 183,140
Net income……………..…………………..…………….…………………….………..$ 55,560
* Office salary reassignment
Total Sales Office
Salaries Salaries Salary
Sales clerks…………………………………………………………..….$46,800 $46,800
Office clerk…………………………………………………...……..…..26,000 $26,000
Financial and Managerial Accounting, 6th Edition