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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
Variable overhead (2,400,000* x 25%) .....................................................
600,000
Total incremental cost of making 50,000 units ................................
$1,680,000
* Total overhead = 400,000 units x $6 per unit = $2,400,000
INCREMENTAL COST OF BUYING THE PART
Cost per unit to buy .....................................................................................
$ 4.00
Total incremental cost of buying 400,000 units ................................
$1,600,000
Alto is better off buying the TH1 from the outside supplier.
Part 2
Other factors Alto should consider besides cost are:
Problem 23-4B (45 minutes)
Alternative 1: Sell to a wholesaler
Problem 23-5B (55 minutes)
Part 1
Product R
Product T
Selling price per unit .....................................................
$ 60
$ 80
Variable costs per unit ..................................................
20
45
Contribution margin per unit ........................................
$ 40
$ 35
Machine hours to produce 1 unit ................................
0.4
1.0
Contribution per machine hour
(or contribution/[hours per unit]) ..............................
$100
$ 35
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
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:
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
point where 675 units can be sold. This means the company can produce
675 units of Product R, and commit the remainder of its productive
capacity to Product T. These computations are:
Financial & Managerial Accounting, 5th Edition
1326
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
Advertising .........................................................
30,000
3,000
27,000
Store supplies used ...........................................
7,000
1,400
5,600
Depreciation of store equip. .............................
21,000
21,000
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
Office salary* ......................................................
26,000
26,000
Insurance expense* ...........................................
5,600
910
4,690
Miscellaneous office expenses* .......................
4,200
750
3,450
Total expenses .....................................................
$826,400
$181,960
$644,440
Problem 23-6B (Continued)
Part 2
ESME COMPANY
Forecasted Annual Income Statement
Under Plan to Eliminate Department Z
Sales ......................................................................................................
$700,000
Cost of goods sold ..............................................................................
461,300
Gross profit from sales .......................................................................
238,700
Operating expenses
Advertising .........................................................................................
27,000
Store supplies used ..........................................................................
5,600
Depreciation of store equipment .....................................................
21,000
Sales salaries .....................................................................................
59,800*
Rent expense .....................................................................................
27,600
Bad debts expense ............................................................................
21,000
Office salary .......................................................................................
13,000*
Insurance expense ............................................................................
4,690
Miscellaneous office expenses ........................................................
3,450
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
Reassign office clerk to sales ................................
0
13,000
(13,000)
Revised salaries................................................................
$72,800
$59,800
$13,000
Financial & Managerial Accounting, 5th Edition
1328
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)
Plus Dept. Z’s eliminated expenses ......................................................
181,960
Forecasted net income ...........................................................................
$ 55,560
ANALYSIS
SERIAL PROBLEM — SP 23
Serial Problem, Success Systems (50 minutes)
Desks
Chairs
Selling price per unit ...............................................................
$ 1,125
$ 375
Variable costs per unit ............................................................
500
200
Contribution margin per unit ..................................................
$ 625
$ 175
Direct labor hours to produce 1 unit ................................
5
4
Contribution per direct labor hour ................................
$125.00
$43.75
As the desks have the highest contribution margin per direct labor hour
used, Adria 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
Total direct labor hours used for desks ................................
875
Total direct labor hours available ................................
1,015
Hours available to produce chairs................................
140
Direct labor hours required per chair ................................
4
Chairs that can be produced in that time ..............................
35
Therefore, Adria should produce 175 desks and 35 chairs. Her contribution
margin for that level is:
Desks
Chairs
Total
Sales ................................................................
$196,875
$13,125
$210,000
Variable costs.......................................................
87,500
7,000
94,500
Contribution margin ............................................
$109,375
$ 6,125
$115,500
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
Variable costs, chairs: 35 x $200 = 7,000
