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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
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, 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
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, 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
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
1. Relevant costs for Apple’s make or buy decision include the costs of
2. Nonfinancial factors relevant to the make or buy decision potentially
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
3.
MEMORANDUM
TO:
FROM:
DATE:
SUBJECT:
Primary points for discussion of the importance of effective
advertising:
(a) Students need to recognize that advertising is very expensive
and crucial to most merchandisers.
(b) The students should also recognize that an advertisement
must be effective to justify its cost and the related product mix
decision of managers.
(c) In most cases the advertisement must generate several
thousand dollars in sales to pay for the advertisement.
Ethics Challenge — BTN 23-3
1 and 2.
Per
controller
Per
Asiago
Selling price ................................................................
$ 40
$ 40
Variable costs ................................................................
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
$40? If so, is Asiago willing to accept a commission one-half of his
regular commission? Is the company willing to accept a sale with a
©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Solutions Manual, Chapter 23
1381
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
these companies to lower their costs and generate higher profits.
Business process outsourcing also benefits “third world” countries by
generating good jobs.
Entrepreneurial Decision — BTN 23-7
1.
Deluxe
Premium
Selling price per unit .....................................................
$ 70
$ 90
Variable costs per unit ..................................................
40
50
Contribution margin per unit ........................................
$30
$40
Processing hours to produce 1 unit (carton) ..............
1
2
Contribution per processing hours
(contribution margin per unit/[hours per unit]) ...............
$30
$20
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:
Max. output of Deluxe = = 400 cartons per month
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.
400 hrs. per mo.
1.0 hrs. per carton
©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Solutions Manual, Chapter 23
1383
Entrepreneurial Decision (continued)
The output of Premium brownies with 340 production hours is
Premium food = = 170 cartons per month
Contribution Margin at This Sales Mix
Units
Contr./unit
Total
From Deluxe brownies ................................
60
$30
$1,800
From Premium brownies ................................
170
40
6,800
Total contribution margin ................................
$8,600
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;
costs of training personnel to prepare the new item; costs of new
packaging required; costs of reformatting the cash registers to accept
the new item.
Nonfinancial items to be considered: Whether the new product will
enhance the current menu; consumer acceptance of the new item; lost
sales from current products if customers change from regular products;
competitors’ reaction to the new product.
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
society to be a good citizen. This also has the benefit that some customers
may look upon the company more favorably and be more inclined to buy
Samsung’s products.
340 hrs. per mo.
2.0 hrs. per carton
