Problem 23-6B (Continued)
Part 3
ESME COMPANY
Reconciliation of Combined Income with Forecasted Income
Combined net income …………..……………..………………………………………$ 48,600
Less Dept. Z’s lost sales…………….…………………….….…….….…….….…..(175,000)
ANALYSIS
Department Z’s avoidable expenses of $181,960 are $6,960 greater than its
revenues of $175,000. This means the company’s annual net income would
SERIAL PROBLEM — SP 23
Serial Problem, Business Solutions (50 minutes)
Desks Chairs
Selling price per unit…….………………….……………………………..$ 1,125 $ 375
Variable costs per unit…………………..……………..……………..…. 500 200
As the desks have the highest contribution margin per direct labor hour
used, Santana should fill all of the orders for the desks first, and then fill as
many of the orders for the chairs as she can.
Orders for desks………………..……………..…..…….….…….….…... 175
Direct labor hours required per desk………………………..….…. 5
Direct labor hours required per chair……….….….…….….……. 4
Chairs that can be produced in that time…….….….…….….…. 35
Therefore, Santana should produce 175 desks and 35 chairs. Her
contribution margin for that level is:
Desks Chairs Total
Sales……………..………………………………..….…….….$196,875 $13,125 $210,000
Calculations:
Sales of desks: 175 x $1,125 = $196,875
Sales of chairs: 35 x $375 = $13,125
Variable costs, desks: 175 x $500 = $87,500
Financial and Managerial Accounting, 6th Edition
1378
Variable costs, chairs: 35 x $200 = 7,000
Reporting in Action — BTN 23-1
1. Relevant costs for Apple’s make or buy decision include the costs of
direct materials (such as component parts), direct labor (such as wages
2. Nonfinancial factors relevant to the make or buy decision potentially
Comparative Analysis — BTN 23-2
1. Answer depends on the newspaper selected and its price for advertising
2. If we assume that the average product of Apple and Google sells for
around $400, then the contribution margin per product is about $80
(using the 20% stated assumption in the problem). This would mean
that the company would need to sell at least 100 additional products
3.
MEMORANDUM
TO:
FROM:
DATE:
SUBJECT:
Primary points for discussion of the importance of effective
advertising:
(b) The students should also recognize that an advertisement
must be effective to justify its cost and the related product mix
decision of managers.
Financial and Managerial Accounting, 6th Edition
Ethics Challenge — BTN 23-3
1 and 2.
Per
controller
Per
Asiago
Selling price ………….………………………………………………….…...
$ 40 $ 40
42 40
Contribution margin…………………………..………………..………….
$ (2) $ 0
3. Whether the company should take the order depends on several factors:
Asiago is eager to obtain a new customer. However, will the
customer expect that the selling price of the product will remain at
in order to make a profit.
Communicating in Practice — BTN 23-4
MEMORANDUM
TO: Manager
FROM: Student
DATE:
SUBJECT: Considerations when deciding whether to drop the hardware department
It is important to understand fully the consequences of dropping a
department. Many factors need to be taken into account. These include:
What is the contribution margin of the department? If it is positive
it is contributing something to cover the overall fixed costs of the
entire store.
go elsewhere instead of Greeble’s?
Taking It to the Net — BTN 23-5
1. According to this website, business process outsourcing (BPO) is the
2. Business processes typically outsourced payroll, employee benefits
3. Companies who outsource their business processes are able to recruit
more labor at lower prices than they otherwise could. This enables
Teamwork in Action — BTN 23-6
Instructor note: Answers will vary across students. Yet the examples, while
different, should capture similar qualitative factors.
SAMPLE SOLUTION
Project: Investment in an improved baggage handling system.
The new, improved baggage handling system is expected to increase both
customer satisfaction and likelihood of repeat business.
Qualitative Factors
Competition has a new, more efficient and effective system.
Need to replace old system.
Financial and Managerial Accounting, 6th Edition
Entrepreneurial Decision — BTN 23-7
1.
Deluxe Premium
Selling price per unit…….………………….……………………. $ 70 $ 90
Variable costs per unit…………………..……………..……….. 40 50
Sales Mix Recommendation. To the extent allowed by production and
market constraints, Charlie should produce as many Deluxe brownies as
possible. With a capacity of 400 hours of processing time per month, the
company can produce 400 cartons of Deluxe brownies, computed as:
Contribution Margin at Recommended Sales Mix
2. Sales Mix Recommendation with Sales Constraint. Charlie should make
60 cartons of Deluxe brownies to exactly match expected demand, and
commit the remainder of its productive capacity to Premium brownies.
This is computed as follows:
Deluxe brownies…………..………………….…………………….…..= 60 cartons per month
Hours per carton………………..……………..….…….….…….…...1.0
Hours used for Deluxe brownies…………………..….….…….. 60 hours
Hours left for Premium brownies (400 hrs – 60 hrs)…………….
340 hours
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Solutions Manual, Chapter 23
400 hrs. per mo.
1.0 hrs. per carton
1383
Entrepreneurial Decision (continued)
The output of Premium brownies with 340 production hours is
Contribution Margin at This Sales Mix
Units Contr./unit Total
From Deluxe brownies………….……………………….60 $30 $1,800
Hitting the Road — BTN 23-8
Costs that must be considered: Costs of the ingredients, labor costs to
prepare the item; additional equipment needed to produce the item;
Nonfinancial items to be considered: Whether the new product will
Global Decision — BTN 23-9
There are probably several reasons why Samsung would take on this
project. One reason is that Samsung probably feels a responsibility to
Financial and Managerial Accounting, 6th Edition
340 hrs. per mo.
2.0 hrs. per carton