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Financial & Managerial Accounting, 5th Edition
1306
Exercise 23-12 (continued)
SALES MIX RECOMMENDATION: These results suggest the company
should manufacture as many units of Product TLX as it can produce
and sell until reaching a (market or production) constraint. Thereafter,
any remaining capacity should be devoted to Product MTV, up to the
maximum that can be produced and/or sold.
2. CONTRIBUTION MARGIN FROM THE RECOMMENDED SALES MIX
Units
Contribution
per Unit
Total
Product TLX ......................................
4,700
$10.20
$47,940
Product MTV .....................................
2,000
4.00
8,000
Total ...................................................
$55,940
Exercise 23-13 (30 minutes)
K1
S5
G9
Selling price per unit .....................................................
$160
$112
$210
Variable costs per unit ..................................................
96
85
144
Contribution margin per unit ........................................
64
27
66
Pounds of material required .........................................
÷ 4
÷ 3
÷ 6
Contribution margin per pound ................................
$ 16
$ 9
$ 11
Childress should produce and fill orders for K1 first because it has the
PROBLEM SET A
Problem 23-1A (45 minutes)
JONES PRODUCTS
COMPARATIVE INCOME STATEMENTS
(1)
(2)
(3)
Normal
New
Volume
Business
Combined
Sales ............................................................
$2,400,000
$260,000
$2,660,000
Costs and expenses
Direct materials ................................
576,000
72,000
648,000
Direct labor ...............................................
144,000
27,000
171,000
Overhead ..................................................
320,000
30,000
350,000
Selling expenses ................................
150,000
150,000
Administrative expenses ........................
100,000
5,000
105,000
Total costs & expenses .............................
1,290,000
134,000
1,424,000
Operating income ................................
$1,110,000
$126,000
$1,236,000
Supporting computations
Normal direct materials cost ........................................
$576,000
Units of output ...............................................................
400,000
Cost per unit ..................................................................
$ 1.44
New business volume ...................................................
50,000
New business direct materials cost .............................
$ 72,000
Normal direct labor cost ...............................................
$144,000
Units of output ...............................................................
400,000
Cost per unit ..................................................................
$ 0.36
Overtime per unit (50%) ................................................
0.18
New business direct labor cost per unit ......................
$ 0.54
New business volume ...................................................
50,000
New business direct labor cost ....................................
$ 27,000
Total overhead ...............................................................
$320,000
Fixed overhead (25%) ...................................................
80,000
Variable overhead .........................................................
$240,000
Units of output ...............................................................
400,000
Cost per unit ..................................................................
$ 0.60
New business volume ...................................................
50,000
New business variable overhead cost .........................
$ 30,000
Financial & Managerial Accounting, 5th Edition
1308
Problem 23-2A (50 minutes)
Part 1
CALLA COMPANY
COMPARATIVE INCOME STATEMENTS
(a)
(b)
(c)
Normal
New
Volume
Business
Combined
Sales ..................................................
$4,000,000
$450,000
$4,450,000
Costs and expenses
Direct materials ..............................
800,000
100,000
900,000
Direct labor .....................................
640,000
80,000
720,000
Overhead ........................................
960,000
84,000
1,044,000
Selling expenses ............................
560,000
62,000
622,000
Administrative expenses ..............
480,000
1,000
481,000
Total costs and expenses ...............
3,440,000
327,000
3,767,000
Operating income ............................
$ 560,000
$123,000
$ 683,000
Supporting computations
Normal sales revenue (80,000 x $50) ...........................
$4,000,000
New business sales revenue (10,000 x $45) ................
$ 450,000
Normal direct materials cost ........................................
$ 800,000
Units of output ...............................................................
80,000
Cost per unit ..................................................................
$ 10.00
New business volume ...................................................
10,000
New business direct materials cost .............................
$ 100,000
Normal direct labor cost ...............................................
$ 640,000
Units of output ...............................................................
80,000
Cost per unit ..................................................................
$ 8.00
New business volume ...................................................
10,000
New business direct labor cost ....................................
$ 80,000
Problem 23-2A (concluded)
Total overhead ...............................................................
$ 960,000
Fixed overhead (30%) ...................................................
288,000
Variable overhead .........................................................
$ 672,000
Units of output ...............................................................
80,000
Cost per unit ..................................................................
$ 8.40
New business volume ...................................................
10,000
New business variable overhead cost .........................
$ 84,000
Total selling expenses ..................................................
$ 560,000
Fixed selling expenses (40%) .......................................
224,000
Variable selling expenses .............................................
336,000
Units of output ...............................................................
80,000
Cost per unit ..................................................................
$ 4.20
Plus additional selling expenses per unit ...................
2.00
Total selling cost per unit for this order ......................
$ 6.20
New business volume ...................................................
10,000
New business selling expenses ...................................
$ 62,000
Part 2
Based on the financial analysis above, Calla should accept the order. The
order provides additional income of $123,000. Other factors that Calla
should consider are:
Part 3
If the new customer demands 15,000 units instead of 10,000, this will mean
Financial & Managerial Accounting, 5th Edition
1310
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
Variable overhead ($450,000* x 20%) ............................................
90,000
Total incremental cost of making 50,000 units ...............................
$740,000
INCREMENTAL COST OF BUYING THE PART
Cost per unit to buy ...........................................................................
$ 18.00
Total incremental cost of buying 50,000 units ................................
$900,000
Haver is better off making RX5.
Part 2
Other factors Haver should consider besides cost are:
Problem 23-4A (30 minutes)
Alternative 1: Sell to a second-hand shop
Problem 23-5A (55 minutes)
Part 1
Product G
Product B
Selling price per unit .....................................................
$120
$160
Variable costs per unit ..................................................
40
90
Contribution margin per unit ........................................
$ 80
$ 70
Machine hours to produce 1 unit ................................
0.4
1.0
Contribution per machine hour
(or contribution/[hours per unit]) ..............................
$200
$ 70
Part 2
Sales Mix Recommendation. To the extent allowed by production and
market constraints, the company should produce as much of Product G as
possible. With a single shift yielding 176 hours per month (8 x 22), the
company can produce these units of Product G:
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
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
point where 700 units can be sold. This means the company can produce
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
Direct expenses
Advertising .........................................................
29,000
12,000
17,000
Store supplies used ................................
7,800
3,800
4,000
Depreciation—Store equipment .......................
8,300
8,300
Allocated expenses
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
Insurance expense* ................................
3,100
770
2,330
Miscellaneous office expenses* .......................
4,000
400
3,600
Total expenses .....................................................
$688,560
$284,070
$404,490
Financial & Managerial Accounting, 5th Edition
1316
Problem 23-6A (Continued)
Part 2
ELEGANT DECOR COMPANY
Forecasted Annual Income Statement
Under Plan to Eliminate Department 200
Sales .........................................................................................................
$436,000
Cost of goods sold .................................................................................
262,000
Gross profit from sales ..........................................................................
174,000
Operating expenses
Advertising ............................................................................................
17,000
Store supplies used .............................................................................
4,000
Depreciation of store equipment ........................................................
8,300
Sales salaries ........................................................................................
67,600*
Rent expense ........................................................................................
14,160
Bad debts expense ...............................................................................
9,900
Office salary ..........................................................................................
15,600*
Insurance expense ...............................................................................
2,330
Miscellaneous office expenses ...........................................................
3,600
Total operating expenses ......................................................................
142,490
Net income ...............................................................................................
$ 31,510
* Administrative salary reassignment
Total
Sales
Office
Salaries
Salaries
Salary
Salesclerks ................................................................
$52,000
$52,000
Administrative worker .......................................................
31,200
$31,200
Reassign admin. worker to sales ................................
0
15,600
(15,600)
Revised salaries ................................................................
$83,200
$67,600
$15,600
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)
Plus Dept. 200’s eliminated expenses ...............................................
284,070
Forecasted net income ........................................................................
$ 31,510
ANALYSIS
Department 200's avoidable expenses of $284,070 are $5,930 less than its
Financial & Managerial Accounting, 5th Edition
1318
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
Direct materials ........................................
384,000
64,000
448,000
Direct labor ...............................................
96,000
24,000
120,000
Overhead ..................................................
288,000
36,000
324,000
Selling expenses ......................................
120,000
120,000
Administrative expenses ........................
80,000
4,000
84,000
Total costs and expenses .........................
968,000
128,000
1,096,000
Operating income ......................................
$ 232,000
$ 44,000
$ 276,000
Supporting computations
Normal direct material cost .....................................................
$384,000
Units of output ..........................................................................
300,000
Cost per unit .............................................................................
$ 1.28
New business volume ..............................................................
50,000
New business direct material cost ..........................................
$ 64,000
Normal direct labor cost ..........................................................
$ 96,000
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
New business direct labor cost ...............................................
$ 24,000
Total overhead ..........................................................................
$288,000
Fixed overhead (25%) ..............................................................
72,000
Variable overhead ................................................................
$216,000
Units of output ..........................................................................
300,000
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
Direct materials ..............................
825,000
75,000
900,000
Direct labor ................................
1,100,000
100,000
1,200,000
Overhead ........................................
1,375,000
100,000
1,475,000
Selling expenses ............................
275,000
20,000
295,000
Administrative expenses ..............
550,000
700
550,700
Total costs & expenses ...................
4,125,000
295,700
4,420,700
Operating income ............................
$ 275,000
$ 4,300
$ 279,300
Supporting computations
Normal sales revenue (550,000 x $8) ...........................
$4,400,000
New business sales revenue (50,000 x $6) ..................
$ 300,000
Normal direct materials cost ........................................
$ 825,000
Units of output ...............................................................
550,000
Cost per unit ..................................................................
$ 1.50
New business volume ...................................................
50,000
New business direct materials cost .............................
$ 75,000
Normal direct labor cost ...............................................
$1,100,000
Units of output ...............................................................
550,000
Cost per unit ..................................................................
$ 2.00
New business volume ...................................................
50,000
New business direct labor cost ....................................
$ 100,000
Financial & Managerial Accounting, 5th Edition
1320
Problem 23-2B (concluded)
Total overhead ...............................................................
$1,375,000
Fixed overhead (20%) ...................................................
275,000
Variable overhead .........................................................
$1,100,000
Units of output ...............................................................
550,000
Cost per unit ..................................................................
$ 2.00
New business volume ...................................................
50,000
New business variable overhead cost .........................
$ 100,000
Total selling expenses ..................................................
$ 275,000
Fixed selling expenses (60%) .......................................
165,000
Variable selling expenses .............................................
110,000
Units of output ...............................................................
550,000
Cost per unit ..................................................................
$ 0.20
Plus additional selling expenses per unit ...................
0.20
Total selling cost per unit for this order ......................
$ 0.40
New business volume ...................................................
50,000
New business selling expenses ...................................
$ 20,000
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
should consider are:
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
