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Problem 7-25 (continued)
3. Other factors that the company should consider include:
a. Will volume in future years increase, or will it remain constant at
40,000 units per year? (If volume increases, then renting the new
Problem 7-27 (continued)
4. Because the additional capacity would be used to produce the Cari doll,
the company should be willing to pay up to $21.00 per DLH ($12.00
usual labor rate plus $9.00 contribution margin per DLH) for added labor
terms of the contribution margin per unit of the constrained resource—
Problem 7-28 (continued)
If the company can sell more than 6,000 containers of the candies each
month, then profits will be higher than if the honey were simply sold
outright. If the company cannot sell at least 6,000 containers of the
candies each month, then profits will be higher if the company
Sales of candies:
Containers sold per month ..................
5,000
6,000
7,000
Sales revenue @ $4.40 per container ...
$22,000
$26,400
$30,800
Less incremental variable costs @
$1.17 per container ..........................
5,850
7,020
8,190
Incremental contribution margin ..........
16,150
19,380
22,610
Less avoidable fixed costs ...................
5,880
5,880
5,880
Total contribution to profits .................
$10,270
$13,500
$16,730
Sales of equivalent amount of honey:
Pounds sold per month* .....................
3,750
4,500
5,250
Sales revenue @ $3.00 per pound .......
$11,250
$13,500
$15,750
*
5,000 containers × 3/4 pounds per container = 3,750 pounds
6,000 containers × 3/4 pounds per container = 4,500 pounds
7,000 containers × 3/4 pounds per container = 5,250 pounds
If there is a choice between selling 3,750 pounds of honey or selling
