Chapter 8 – Using Accounting Information to Make Managerial Decisions
Problem 8-21
a. The variable costs are the only relevant costs of the special order, so
those amounts need to be calculated first.
Selling and administrative costs ($14/unit 400,000 units) $5,600,000
Problem 8-21, continued
request
Current customer dissatisfaction with Nordic paying a lower price –
does not support request
c.
Chapter 8 – Using Accounting Information to Make Managerial Decisions
8-23
d.
Contribution from outsourcing windows
Sales
$140.00
Purchase price
(105.00)
Distribution ($140 × 0.02)
(2.80)
Variable selling and administrative costs
(3.45)
Contribution margin
$28.75
Number of units
25,000
Contribution from outsourcing
$718,750
Problem 8-22
a.
Appropriate/
Inappropriate
Correct/
Incorrect
Explanation
1.
Appropriate
Correct
2.
Inappropriate
Since the supervisor is
being transferred, the
salary amount will be
incurred regardless of
the decision. Therefore,
it is non-differential and
not relevant to the
decision.
3.
Appropriatea
Correct
4.
Appropriate
Incorrect
5.
Appropriate
Correct
6.
Appropriate
Incorrect
7.
Appropriate
Correct
8.
Appropriate
Correct
9.
Appropriate
Incorrect
aIf the company chooses not to outsource, there are two purchasing clerk salaries to pay – the one in the
assembly department and the one in the sales department. If the company chooses to outsource, there
elimination of the assembly department position.
Chapter 8 – Using Accounting Information to Make Managerial Decisions
8-25
b.
Reduction in assembly technicians
$32,500 36
$1,170,000
Purchasing clerk transferred
19,000
Storage rental savings
1,500 sq. ft. $12/sq. ft
18,000
Reduced purchase orders
1,200 P.O.s $1.40/P.O.
1,680
Increased component cost
125,000 units ($88 – $36 – $11.60)
(5,050,000)
Hire junior engineer
(28,000)
Hire quality control inspector
(26,000)
Storage costs for safety stock
125,000 units $3.25/unit 4% increase
(16,250)
Net annual cost
($3,911,570)
c. Financial stability of vendor
Solutions for Davis & Davis, Managerial Accounting, 2nd ed.
8-26
Problem 8-23
a. The engineers’ time is an unavoidable fixed cost—it won’t be saved if
Chapter 8 – Using Accounting Information to Make Managerial Decisions
8-27
Problem 8-24
a.
Make
Buy
Direct materials
$12.00
Direct labor
6.00
Variable overhead
3.00
Salaries ($8 × 30%)
2.40
Relevant cost per unit to make
$23.40
Cost to buy
$32
Units needed
40,000
40,000
Total cost
$936,000
1,280,000
units.
b.
Make
Buy
Direct materials
$12
Direct labor
6
Variable overhead
3
Relevant cost per unit to make
$21
Cost to buy
$32
Units needed
40,000
40,000
Total cost
$840,000
$1,280,000
Contribution margin from alternative use of
facilities (($11 – $7) 100,000 units)
(400,000)
Net cost
$880,000
the units.
8-28
Problem 8-25
a.
Per unit
Ratio
Revenues
$18,000
$15.00
100.0%
Variable Costs
Cartons
(6,000)
(5.00)
(33.3%)
Cushioning
(600)
(.50)
(3.3%)
Tape, labels
(1,500)
(1.25)
(8.4%)
Total variable costs
(8,100)
(6.75)
(45.0%)
Contribution margin
9,900
$8.25
55.0
Fixed Costs
Salaried Labor
(4,000)
Overhead
(4,100)
Total fixed costs
(8,100)
Income
$1,800
Unless the proportions of the other material costs to sales price vary
widely, it is unlikely that Roger will lose money.
b. If Elizabeth’s work increases the burden on the existing employees by
c. Any problems with packing and shipping are still Elizabeth’s
8-29
Problem 8-26
b.
Dumbbell Rack
Weight Bench
Sales price
$50
$61
Variable cost
27
29
Contribution margin
$23
$32
÷ MH/unit
.5
.8
Contribution margin/MH
$46
$40
Production order
1
2
MH Remaining
6,000 MH
Dumbbell Rack
4,000 racks × .5 MH = 2,000 MH used
4,000 MH
Weight Bench
5,000a benches × .8 MH = 4,000 MH used
0 MH
a 4,000 MH available ÷ .8 MH per bench
MH Remaining
6,000 MH
Weight Bench
5,800 benches × .8 MH = 4,640 MH used
1,360 MH
Dumbbell rack
2,720 a racks ×.5 MH = 1,360 MH used
0 MH
a 1,360 MH available ÷ .5 MH per bench
8-30
Problem 8-26, continued
MH Remaining
6,000 MH
Dumbbell Rack
2,000 racks ×.5 MH = 1,000 MH used
5,000 MH
Weight Bench
6,250a benches × .8 MH = 5,000 MH used
0 MH
a 5,000 MH available ÷ .8 MH per bench
CM = (2,000 racks × $29) + (6,250 benches × $32) = $258,000
increase capacity.