Chapter 8 – Using Accounting Information to Make Managerial Decisions
8-31
Problem 8-27
a.
Demand
Hours per
session
Hours
needed
Math
120
.75
90
Writing
210
1.50
315
Science
100
.50
50
Total
455
b.
Math
Writing
Science
Sales price per session
$25.00
$30.00
$15.00
Variable costs per session
13.00
24.00
8.00
Contribution margin per session
12.00
6.00
7.00
Labor hours per session
.75
1.50
.50
Contribution margin/labor hour
$16.00
$4.00
$14.00
Preference ranking
#1
#3
#2
Sessions
offered
Hours per
session
Hours used
Hours
available
350
Math
120
.75
90
260
Science
100
.50
50
210
Writing
140a
1.50
210
0
a Since only 210 hours remain to teach the Writing sessions, and it takes 1.5 hours per session, only
140 sessions can be offered (210 1.5).
c.
Sessions
offered
Contribution
per session
Total
Math
120
$12
$1,440
Science
100
$7
700
Writing
140
$6
840
$2,980
8-32
Problem 8-27, continued
d.
Demand
Students
per session
Sessions
needed
Hours per
session
Hours
needed
Math
120
2
60
.75
45.0
Writing
210
1
210
1.50
315.0
Science
100
4
25
.50
12.5
Total
372.5
Math
(2)
Writing
(1)
Science
(4)
Revenue per session
$50.00
$30.00
$60.00
Less
Labor costs per session
12.00
22.00
7.00
Supplies cost per session
2.00
2.00
4.00
Contribution margin per session
$36.00
$6.00
$49.00
Labor hours per session
.75
1.50
.50
Contribution margin/labor hour
$48.00
$4.00
$98.00
Preference ranking
#2
#3
#1
Sessions
offered
Hours per
session
Hours used
Hours
available
350.00
Science
25
.50
12.50
337.50
Math
60
.75
45.00
292.50
Writing
195a
1.50
292.50
0
a Since only 292.5 hours remain to teach the Writing sessions, and it takes 1.5 hours per session,
Chapter 8 – Using Accounting Information to Make Managerial Decisions
8-33
Problem 8-28
Option 1:
Per unit
Sales revenue
$688,000
$86.00
Variable expenses
Direct materials
$136,000
17.00
Direct labor
150,000
18.75
Manufacturing overhead
56,000
7.00
Selling & administrative
80,000
10.00
Total variable expenses
422,000
52.75
Contribution margin
266,000
$33.25
Fixed expenses
106,000
Operating income
$160,000
Option 2:
Regular
Outsourced
Total
Sales revenue
$86.00
$86.00
Purchase price
$68.00
Direct materials
17.00
Direct labor
18.75
Manufacturing overhead
7.00
Selling & administrative
10.00
10.00
Total variable cost
52.75
78.00
Contribution margin
33.25
8.00
Units sold
8,000
4,000
Total contribution margin
$266,000
$32,000
$298,000
Fixed expenses
106,000
Operating income
$192,000
8-34
Problem 8-28, continued
Option 3:
Tackle boxes
Skateboards
Total
Sales revenue
$86.00
$45.00
Variable production costs
Purchase price
$68.00
22.50
Selling & administrative
10.00
10.00
Total variable cost
78.00
32.50
Contribution margin
$8.00
12.50
Units sold
9,000
17,500
Total contribution margin
$72,000
$218,750
$290,750
Fixed expenses
106,000
Operating income
$184,750
Recap:
8-35
Problem 8-29
a.
A
B
C
Total
Sales revenue
$2,200
$1,400
$1,800
$5,400
Variable expenses
1,400
800
1,080
3,280
Contribution margin
800
600
720
2,120
Less direct fixed expenses
Advertising
630
525
520
1,675
Depreciation
15
10
20
45
Segment margin
$ 155
$ 65
$ 180
400
Less common fixed expenses
275
Operating profit
$ 125
$6/unit
8-36
Problem 8-30
a. If Fenner Road is closed:
Fenner Road store.
b. The Maple Avenue store should not be closed since it generates a
c. 10% increase in Fenner contribution margin $3,600
Chapter 8 – Using Accounting Information to Make Managerial Decisions
8-37
Problem 8-30, continued
d.
Sales at
Variable Cost
Remaining
Sales
Total Fenner
Road Sales
Sales
$60,000
$60,000
$120,000
Variable expenses
60,000
24,000
84,000
Contribution margin
$0
$36,000
$ 36,000
Contribution margin lost on remaining sales ($7,200)
($36,000 20%)
Direct expenses saved ($40,000 15%) 6,000
Decrease in operating income ($1,200)
will decrease.
8-38
SOLUTIONS TO C&C CONTINUING CASE
Case 8-31
a.
Pants
Jerseys
Jackets
Sales price
$12.00
$14.80
$125.00
Direct materials
$ 4.47
$ 6.85
$ 44.72
Direct labor
2.40
1.92
14.40
Variable overhead
1.32
1.05
7.92
Commission
.60
.74
6.25
Shipping
.40
.40
.40
Total variable cost
$ 9.19
$10.96
$ 73.69
Contribution margin
$ 2.81
$ 3.84
$ 51.31
b.
Pants
Jerseys
Jackets
Contribution margin
$ 2.81
$ 3.84
$51.31
÷ Direct labor hours per unit
÷ .25
÷ .20
÷ 1.50
Contribution margin per DLH
$11.24
$19.20
$34.21
d.
Pants
200,000 pants × 0.25 DLH/pant =
50,000 DLH
Jerseys
70,000 jerseys × 0.20 DLH/jersey =
14,000 DLH
Jackets
18,000 jackets × 1.5 DLH/jacket =
27,000 DLH
91,000 DLH
f. 3,500 additional jerseys would require 700 additional DLH (3,500
Chapter 8 – Using Accounting Information to Make Managerial Decisions
8-39
If jerseys are made instead of jackets, C&C will make 467 fewer