Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 23
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Problem 23-4B (45 minutes)
Alternative 1: Sell to a wholesaler
Incremental revenue (7,500 x $75.00) …………………………………………………
$ 562,500
Incremental cost ……………………………………………………………………………….
Incremental income …………………………………………………………………………..
$ 562,500
Alternative 2: Disassemble and sell to a recycler
Incremental revenue (7,500 x $130.00) ……………………………………………….
$ 975,000
Incremental cost ……………………………………………………………………………….
Incremental income …………………………………………………………………………..
$ 575,000
Alternative 3: Rework and sell at regular prices
Incremental revenue (7,500 x $500.00) ……………………………………………….
$3,750,000
Incremental cost ……………………………………………………………………………….
Incremental income …………………………………………………………………………..
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 23
Problem 23-5B (55 minutes)
Part 1
Product R
Product T
Selling price per unit ……………………………………………..
$ 60
$ 80
Variable costs per unit …………………………………………..
Machine hours to produce 1 unit …………………………..
Part 2
Sales Mix Recommendation To the extent allowed by production and
market constraints, the company should produce as much of Product R as
Contribution Margin at Recommended Sales Mix
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 23
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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:
= 550 units per month
The output of Product T with 132 production hours is:
Contribution Margin at This Sales Mix
Units
Contr./unit
Total
From R ……………………………………………………….
550
$40
$22,000
From T ……………………………………………………….
132
Less extra shift costs ……………………………………
Total incremental income …………………………..
$23,370
Management decision This amount of $23,370 exceeds the contribution
margin of $17,600 generated by one shift alone (see part 2). Therefore,
management should add the second shift.
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:
= 675 units per month
0.4
Contribution Margin with This Sales Mix
Units
Contr./unit
Total
From R ……………………………………………………….
675
$40
$27,000
From T ……………………………………………………….
82
35
2,870
Less extra shift costs ……………………………………
Less extra marketing costs …………………………..
Total incremental ………………………………………….
$22,120
3). Therefore, management should not undertake this marketing strategy.
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 23
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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 …………………………………….
1,400
Allocated expenses
Sales salaries* …………………………………………….
93,600
46,800
Rent expense………………………………………………
27,600
27,600
Bad debts expense ……………………………………..
25,000
4,000
21,000
Insurance expense* …………………………………….
Computation Notes Closing Department Z will eliminate 65% of its insurance
expense and 30% of its miscellaneous office expense. Sales salaries will be
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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
Depreciation of store equipment ……………………………………………..
21,000
21,000
Insurance expense ………………………………………………………………….
Total
Sales
Office
*Office salary reassignment
Salaries
Salaries
Salary
Sales clerks ……………………………………………………….
$46,800
$46,800
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 23
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Problem 23–6B (Continued)
Part 3
ESME COMPANY
Reconciliation of Combined Income with Forecasted Income
Combined net income …………………………………………………………………
$ 48,600
181,960
ANALYSIS
Department Z’s avoidable expenses of $181,960 are $6,960 greater than its
revenues of $175,000. This means the company’s annual net income would
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 23
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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
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
875
140
Direct labor hours required per chair …………………………..
4
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……………………………………………….
$109,375
$ 6,125
$115,500
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 23
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Company Analysis — AA 23-1
1. Variable cost per unit
Variable Cost
Per Unit
Direct materials ……………………………………………………
$230
Selling price using variable cost method
Per Unit
Total variable cost ……………………………………………….
$280
2. Target cost
Per Unit
Market price …………………………………………………………
$ 800
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 23
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Comparative Analysis — AA 23-2
1. With an average selling price of $400 per unit and a contribution margin
2. If instead Google targets products with contribution margin ratios of
25% or more the ad needs to sell fewer units to justify its cost. In this
Global Analysis — AA 23-3
1. Variable cost per unit
Variable Cost
Per Unit
Direct materials …………………………………………………..
$ 285
Selling price using variable cost method
Per Unit
Total variable cost ………………………………………………
$ 330
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 23
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AA 23–3 concluded
2. Total cost per unit
Total Cost
Per Unit
Direct materials …………………………………………………..
$ 285
Direct labor …………………………………………………………
10
Selling price using total cost method
Per Unit
Total cost …………………………..……………………………….
$ 350
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 23
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Ethics Challenge — BTN 23-1
1 and 2.
Per
Controller
Per
Asiago
Selling price ……………………………………………………….
$ 40
$ 40
$ 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 that is one-half of
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 23
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Communicating in Practice — BTN 23-2
MEMORANDUM
TO: Manager
FROM: Student
DATE:
SUBJECT: Considerations when deciding whether to drop the golf department
It is important to understand fully the consequences of dropping a
department. Many factors need to be taken into account. These include:
• What is the contribution margin of the department? If it is positive,
entire store.
• Will there be any fixed costs saved if the department is closed? That
• Will dropping the Golf department affect sales in other
departments? Will customers who need golf products and other items
go elsewhere instead of Greeble’s?
Taking It to the Net — BTN 23-3
1. According to this website, business process outsourcing (BPO) is the
process of hiring another company to handle business activities for you.
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 23
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Teamwork in Action — BTN 23-4
Instructor note: There are many possible answers to this assignment. Following is just a
sample of the types of costs students should consider.
Cost item
Variable
or Fixed?
Cost saved if flight
is dropped?
Rationale
Salaries of
flight
attendants
Fixed
No
If the flight is dropped, these
flight attendants are likely to be
transferred to other flights. It is
Fuel
Variable
Yes
The fuel will not be used, and
therefore will be saved.
Food and
drink given
away on the
flight
Variable
Yes
There will be no passengers to
eat the snacks and drink the
sodas.
Advertising is probably not
aimed at a particular flight.
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 23
Entrepreneurial Decision — BTN 23-5
1.
Deluxe
Premium
Selling price per unit ……………………………………………..
$ 70
$ 90
Sales Mix Recommendation. To the extent allowed by production and
market constraints, Gaurab and Sean should produce as much Deluxe
cleaner as possible. With a capacity of 400 hours of processing time per
month, the company can produce 400 units of Deluxe , computed as:
2. Sales Mix Recommendation with Sales Constraint. Gaurab and Sean
should make 60 units of Deluxe cleaner to exactly match expected demand,
and commit the remainder of its productive capacity to the Premium
cleaner.
Hours per unit ……………………………………………………….
Hours used for Deluxe ………………………………………………..
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 23
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Entrepreneurial Decision (continued)
The output of Premium cleaner with 340 production hours is
Contribution Margin at This Sales Mix
Units
Contr./unit
Total
From Deluxe …………………………..…………………….
60
$30
$1,800
From Premium………………………………………………
Hitting the Road — BTN 23-6
Costs that must be considered: Costs of the ingredients, labor costs to
prepare the item; additional equipment needed to produce the item; costs