Problem 23-4B (continued)
Part 3
① Determine variable cost per unit
Variable Cost per Unit
Direct materials ……………………………………………
$ 285
Direct labor ………………………………………………….
10
② Determine dollar markup per unit
Variable cost per unit ……………………………………
$ 330
Markup percentage ………………………………………
③ Determine selling price per unit
Variable cost per unit ……………………………………
$ 330
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 23
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Problem 23–5B (20 minutes)
Part 1
SPECIAL OFFER ANALYSIS
Per Unit
Total
Sales (50,000 units) …………………………………
$3.00
$150,000
Variable costs
Direct materials …………………………………….
1.28
64,000
Variable overhead …………………………………
Fixed costs
Fixed overhead ……………………………………..
—–
—–
$0.40
Part 2
Accept Special Offer. The company should accept the special offer
because its income increases by $20,000.
Problem 23-6B (20 minutes)
Part 1
SPECIAL OFFER ANALYSIS
Total
Sales (10,000 units) …………………………………………
$58,000
Variable costs
Direct materials …………………………………………….
15,000
Variable overhead …………………………………………
Fixed costs
Fixed general and administrative (Incremental) …..
Part 2
Reject Special Offer. The company should reject the special offer
because its income decreases by $1,000.
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 23
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SERIAL PROBLEM — SP 23
Serial Problem, Business Solutions (25 minutes)
Product Contribution Margin
Desks
Chairs
Selling price per unit ………………………………………….
$ 1,125
$ 375
Variable costs per unit ……………………………………….
$ 175
SALES MIX RECOMMENDATION To the extent allowed by production and market
constraints, Santana should fill all of the orders for desks first, and then fill
as many of the orders for chairs as she can.
With 1,015 direct labor hours available, the company can produce:
Maximum output of chairs = 140 direct labor hours = 35 units
4 DL hours per unit
Mix: 175 desks and 35 chairs
CONTRIBUTION MARGIN AT RECOMMENDED SALES MIX
Sales Mix
Contribution
Margin
Direct Labor
Hours Used
Desks (175 units x $625 per unit)…
Company Analysis — AA 23-1
1.
Time charge per hour of direct labor
Direct labor rate per direct labor hour ………………………………..
$ 40
Target profit ($50 x 40%) ……………………………………………………
2.
Materials markup per dollar of direct materials cost (%)
Materials-related overhead ………………………………………………..
4%
Materials markup ………………………………………………………………
3.
Time and materials price
Direct labor (1,000 hours x $70 per DLH) …………………………...
$ 70,000
Materials markup ($35,000 x 44%) ……………………………………..
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 23
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Comparative Analysis — AA 23-2
1.
Product costs
Direct materials ($490 x 20,000) …………….
$9,800,000
Direct labor ($60 x 20,000) …………………….
1,200,000
Fixed overhead …………………………………….
Fixed ……………………………………………………
2.
Per Unit
Total cost per unit ………………………………….
$ 900
Markup percentage ………………………………..
3.
Per Unit
Total cost per unit ………………………………….
$ 900
Extended Analysis — AA 23-3
1.
Time charge per hour of direct labor
Samsung
Apple
Direct labor rate per direct labor hour ……………………….
$ 38.00
$ 40.00
Non–materials related overhead per direct labor hour ……
10.00
10.00
Target profit (Conversion cost x 40%) ……………………….
19.20
20.00
2.
Materials markup per dollar of direct materials cost (%)
Samsung
Apple
Materials-related overhead ……………………………………….
6%
4%
Target profit margin …………………………………………………
3.
Time and materials price
Samsung
Apple
Direct labor (1,000 hours x time charge per DLH) ………
$ 67,200
$ 70,000
Materials markup ($35,000 x 46%; $35,000 x 44%) ……..
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 23
DISCUSSION QUESTIONS
1. The five steps are: (1) define the decision task, (2) identify alternative courses of
2. Nonfinancial information is relevant to decision making because it includes
3. A relevant cost is a cost that differs between two alternatives in a decision making
process. Relevant costs include out-of-pocket costs and opportunity costs.
5. Qualitative factors can include impacts on relationships with other customers,
impact on the relationship with the customer buying more in a “special offer”
6. An out-of-pocket cost requires a current outlay of cash. An opportunity cost is
7. Sunk costs are irrelevant because they remain the same whether the product is
sold in its present condition or processed further.
8. There are virtually no incremental costs associated with shipping the additional
iPhone. The company’s employees would not receive any additional
9. Apple must consider such factors as: contribution margin lost from the closing of the
store and fixed costs saved from the closing. For instance, it is possible that a
manager who is employed by the store will not be laid off but will be transferred to
10. The company might be willing to accept a special offer at a lower price if (a) the
offer price is greater than its incremental costs, (b) the company has excess
Questions—concluded
11. Price-setters are able to have some control over selling prices, due to some unique
12. Time and materials pricing is a method that combines the costs of labor and
materials on a project to compute a price. Both the labor and materials costs
include charges for overhead costs and a profit margin.
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 his regular
commission? Is the company willing to accept a sale with a zero
contribution margin?
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 23
1439
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,
it is contributing something to cover the overall fixed costs of the
• 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
Teamwork in Action — BTN 23-3
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
Wages of
flight
attendants
Variable
Yes
If the flight is dropped, these
flight attendants are not
necessary and won’t be paid.
flight
Aircraft
depreciation
Fixed
No
The aircraft will be used
elsewhere. However, in the long
run, it is likely that Delta can
reduce the number of aircraft
owned if the flight is
permanently dropped.
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 23
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Entrepreneurial Decision — BTN 23-4
1.
Product Contribution Margin
Short
Long
Selling price per unit ……………………………………………..
$700
$900
Variable costs per unit …………………………………………..
400
500
$300
$400
Contribution margin per direct labor hour
SALES MIX RECOMMENDATION. To the extent allowed by production and
market constraints, Max should produce as many short boards possible.
With a capacity of 240 direct labor hours per month, Max can produce:
3. SALES MIX RECOMMENDATION WITH SALES CONSTRAINT. Max should make 20
Short boards to exactly match expected demand, and commit the
remainder of his productive capacity to make Long boards.
This is computed as follows:
Short …………………………………………………………………..
= 20 units
Direct labor hours per unit …………………………..……..
x 8
DLH
Hours used for Short …………………………………………..
Hours left for Long (240 hours – 160 hours) ………….
Contribution Margin at This Sales Mix
Units
Contr./unit
Total
Short boards …………………………..…….
20
$300
$6,000
Long boards …………………………………
5
400
2,000
Total contribution margin ………………
$8,000