Chapter 8 – Using Accounting Information to Make Managerial Decisions
8-11
Exercise 8-10
Make
Buy
Direct materials
$ 5
Direct labor
12
Variable overhead
8
Avoidable fixed costs ($10 .4)
4
Relevant cost per unit to make
$29
Cost to buy
$32
Units needed
5,000
5,000
Total cost
$145,000
$160,000
Contribution margin from released facilities
(10,000)
Net cost
$150,000
the part.
Solutions for Davis & Davis, Managerial Accounting, 2nd ed.
8-12
Exercise 8-11
a.
higher under the outsourcing option.
b. Assuming the same relative costs, the food cost per meal is $3.00
Operate cafeteria
Outsourced cafeteria
8-13
Exercise 8-12
Small
Medium
Large
Contribution margin per unit
$ 2.00
$ 3.00
$ 4.00
Machine hours per unit
1.00
2.40
3.00
Contribution margin/machine hour
$ 2.00
$ 1.25
$ 1.33
Preference ranking
#1
#3
#2
Produce
Hours per unit
Hours used
Hours available
2,000
Small
500
1
500
1,500
Large
500a
3
1,500
0
Medium
0
Exercise 8-13
A
B
C
Sales price per unit
$ 3.00
$ 5.00
$16.00
Variable costs per unit
1.20
3.40
10.00
Contribution margin per unit
1.80
1.60
6.00
Labor hours per unit
1.20
.50
5.00
Contribution margin/labor hour
$ 1.50
$ 3.20
$ 1.20
Preference ranking
#2
#1
#3
Produce
Hours per unit
Hours used
Hours available
1,800
B
600
.50
300
1,500
A
500
1.20
600
900
C
180a
5.00
900
0
a Since only 900 hours remain to make product C, and it takes 5 hours to make one C, only 180 Cs
can be made (900 5).
8-14
Exercise 8-14
a.
Banners
Kites
Sales price per unit
$12.00
$15.00
Variable costs per unit
9.00
14.00
Contribution margin per unit
3.00
1.00
Machine hours per unit
1.00
.25
Contribution margin/machine hour
$ 3.00
$ 4.00
Preference
#2
#1
Produce
Hours per unit
Hours used
Hours available
1,000
Kites
1,200
.25
300
700
Banners
700a
1.00
700
0
a Since only 700 hours remain to make Banners, and it takes 1 hour to make one banner, only 700
banners can be made (700 1).
b. Managers need to rent machines so that 2,300 additional machine
hours are available.
Chapter 8 – Using Accounting Information to Make Managerial Decisions
8-15
Exercise 8-15
a.
Chocolate Chip
Sugar
Oatmeal Raisin
Sales price
$130
$110
$130
Variable cost
81
62
88
Contribution margin
$ 49
$ 48
$ 42
c.
Chocolate Chip
Sugar
Oatmeal Raisin
Contribution margin
$ 49
$ 48
$ 42
÷ lbs. flour per batch
÷ 2
÷ 2
÷ 1.5
Contribution margin/lb.
$24.50
$24.00
$28.00
Production order
2
3
1
Flour Remaining
50,000 lbs.
Oatmeal Raisin
10,000 batches × 1.5 lbs. = 15,000 lbs. used
35,000 lbs.
Chocolate Chip
12,000 batches × 2 lbs. = 24,000 lbs. used
11,000 lbs.
Sugar
5,500a batches × 2 lbs. = 11,000 lbs. used
0 lbs.
a 11,000 lbs. available ÷ 2 lbs. flour per batch
CM = (12,000 × $49) + (5,500 × $48) + (10,000 × $42) = $1,272,000
Solutions for Davis & Davis, Managerial Accounting, 2nd ed.
8-16
Exercise 8-16
Store segment margin for several years
Comparable store segment margins for several years
Exercise 8-17
Segment margin of Round:
operating income:
8-17
Exercise 8-18
a.
Weak
Average
Strong
Total
Sales
$125,000
$350,000
$500,000
$975,000
Variable expenses
50,000
200,000
300,000
550,000
Contribution margin
75,000
150,000
200,000
425,000
Direct expenses
30,000
80,000
110,000
220,000
Segment margin
$45,000
$70,000
$90,000
205,000
Allocated expenses
150,000
Operating income
$55,000
c. It appears that the total allocated expense is split evenly among the
8-18
Exercise 8-19
a.
Sales revenue
$200,000
Cost of goods sold
Variable
$130,000
Fixed
32,000
162,000
Gross margin
38,000
Operating expenses
Commissions
10,000
Advertising
10,000
Corporate support
25,000
45,000
Operating income
($7,000)
b.
Sales revenue
$200,000
Variable expenses
Cost of goods sold
$130,000
Commissions
10,000
140,000
Contribution margin
60,000
Traceable fixed expenses
Cost of goods sold
16,000
Advertising
10,000
26,000
Segment margin
$ 34,000
Chapter 8 – Using Accounting Information to Make Managerial Decisions
8-19
SOLUTIONS TO PROBLEMS
Problem 8-20
Paper
$0.15
Direct labor
0.05
Variable overhead
0.08
Total variable cost per box
$0.28
the order.
b. With the lighter, cheaper paper, the variable cost per box is $0.23.
Paper
$0.10
Direct labor
0.05
Variable overhead
0.08
Total variable cost per box
$0.23
special order.
Contribution margin on special order
$2,300
Less shipping expenses
(800)
Profit on special order
$1,500
profit.
Solutions for Davis & Davis, Managerial Accounting, 2nd ed.
8-20
Guilford will need to be careful, though, because producing lower
quality boxes may affect the company’s reputation.
The London bakery is unlikely to be a regular customer, but if it does