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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.
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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
