Labor cost Wage rate Labor hours
Model per unit per hour per unit
60$ 40$ 1.50 «- Correct!
80$ 40$ 2.00 «- Correct!
Special order
Total hours
quantity required
2,500 3,750
2,500 5,000
8,750 hours
Correct!
Incremental profit (loss) on special order:
Star 100 Star 150 Total
Differential profit (loss)
Special order units
Total variable cost
Special order units
Incremental Revenue
Differential cost
Differential Costs
Problem 04-53
Enter data in the shaded areas
Requirement a:
Labor hours required for special order:
UNTER COMPONENTS
Star 150
Star 100
Differential Revenues
Star 100
Star 150
Labor hours
special order
Total
per unit quantity Hours
1.50 3,500 5,250.00
2.00 3,500 7,000.00
12,250
Correct!
20,000
12,250
7,750
Correct!
Star 100 Star 150
580$ 780$
220 270
Star 100 Star 150
Star 100 Star 150
Compute contribution margin lost from regular sales:
Contribution margin per hour
CM per unit
Special Order CM
Number of units
Contribution margin per unit
Number of units
Total lost contribution margin
Total contribution margin with the special order:
Direct Labor-hours per unit
Hours over capacity
Lowest contribution margin per hour
CM per unit
Regular Orders CM
Number of units
CM per unit
Compute contribution margin per hour for regular orders:
Star 150
Star 100
Variable cost per unit
Revenue per unit
If labor hours for 3,500 units exceed capacity, production will need to
be reduced on the product with the lowest contribution margin.
Labor hours required for special order:
Requirement b.
Capacity available for regular orders
Capacity used for special order
Plant capacity (in direct labor-hours)
Star 100 Star 150
180$ 230$
3,500 3,500
630,000$ 805,000$ 1,435,000$
360$ 510$
4,000 2,000
Total contribution margin
Incremental cost
Additional variable overhead
Additional direct-labor costs
Number of units
CM per unit
Compute the total contribution margin with the special order:
Requirement c.
Regular production:
Total contribution margin
Number of units
CM per unit
Special Order:
Requirement a. Information:
Additional Information: Variable overhead varies with quantity of direct labor-hours.
Costs per unit
UNTER COMPONENTS
Average wage rate per hour
Plant capacity (in direct labor-hours)
Direct materials
Direct labor
Variable overhead
Fixed overhead
Total cost per unit
Price
Units sold
Current production (in direct labor-hours)
Before Price After Price
Reduction Reduction Impact
370$ 325$
6,000 7,000
2,220,000$ 2,275,000$ 55,000$ Increase
900,000 1,050,000 150,000 Increase
150,000 175,000 25,000 Increase
390,000$ 270,000$ 120,000$ Decrease
Contribution margin
Fixed manufacturing costs
Fixed marketing costs
Operating income
Correct! Correct! Correct!
Without
Government
Contract Regular Government Total Impact
2,960,000$ 2,590,000$ 245,000$ 2,835,000$ 125,000$ Decrease
1,200,000 1,050,000 150,000 1,200,000 – No Change
200,000 175,000 – 175,000 25,000 Decrease
1,560,000 1,365,000 95,000 1,460,000 100,000 Decrease
Correct! Correct!
360,000 360,000 – No Change
420,000 420,000 – No Change
780,000$ 680,000$ 100,000$ Decrease
Correct! Correct! Correct!
The minimum price is that price
which covers the incremental costs
of the order. In other words,
the breakeven point.
Variable manufacturing costs
Compute minimum price:
Requirement c.
Shipping costs per unit
Order costs per unit
Minimum price
Correct!
Fixed manufacturing costs *
Fixed marketing costs
Income
Variable marketing costs
Contribution margin
Variable marketing costs
Revenue
Variable manufacturing costs
Revenue
Variable manufacturing costs
Requirement b.
With Government Contract
Quantity
Requirement a.
DAVIS KITCHEN SUPPLY
Problem 04-57
Sales price
150$
5
54
Enter the minimum acceptable selling price – no computations necessary
All costs are sunk costs except for the variable cost of marketing.
209$
Correct!
6,000 regular
Stoves
Produced
In-house Regular (In)
Regular (Out)
Modified Total
255$
Variable manufacturing cost saved per unit
Variable marketing cost saved per unit
Contributed from freed-up capacity
In-house cost savings per unit
Variable manufacturing costs
Variable marketing costs
Contribution margin
Fixed manufacturing costs
Fixed marketing costs
Avoidable costs:
Income
Correct!
Variable manufacturing cost saved per unit
Variable marketing cost saved per unit
Fixed manufacturing cost saved per unit
In-house cost savings per unit
Requirement e.
Computation of price that is equivalent to in-house cost of production:
Avoidable costs:
Produce 1,600 Modified Stoves and 4,000 Regular Stoves
Contract 2,000 Regular Stoves
Computation of maximum price for outside contractor:
Requirement f.
Requirement d.
6,000
370$
50$
75
25
60
210$
25
70
95
305$
7,000
?
?
?
Requirement a. information:
Increase in volume (in units)
Change in monthly income
Change in monthly sales
Change in monthly costs
New price after reduction
1,000
8,000
1,000
50,000$
?
?
2,000
40$
4,000$
?
?
2,000
?
Percentage reduction in fixed manufacturing costs
Possible fixed price
Percentage reduction in variable marketing costs
Plant capacity utilized
Requirement e. information:
Proposal from outside contractor (in units)
Number of obsolete units in inventory
Minimum acceptable selling price per unit
Foreign market shipping costs per unit
Marketing costs to obtain contract
Minimum unit price
Given Data P04-57:
Total unit manufacturing costs
Fixed overhead
DAVIS KITCHEN SUPPLY
Requirement c. information:
Requirement d. information:
Variable
Unit marketing costs
Government contract (in units)
March production (in units)
Regular orders lost because of contract
Fixed profit from government
Government share of March manufacturing costs
Impact on March income
Foreign market order (in units)
Units manufactured per month
Variable materials
Unit manufacturing costs
Variable overhead
Variable labor
Regular selling price per unit
Total unit costs
Total unit marketing costs
Fixed
Requirement b. information:
1,600
Selling price of modified stoves
Variable manufacturing costs for modified stoves
Variable marketing costs for modified stoves
Price per unit to outside contractor
Use information from requirement e. plus:
Units produced with idle capacity
Requirement f. information:
Basic Classic Formal
600,000$ 640,000$ 5,700,000$
200,000$ 60,000$ 360,000$
224,000 320,000 3,360,000
56,000 80,000 840,000
60,000 64,000 570,000
540,000 524,000 5,130,000
60,000$ 116,000$ 570,000$
Correct! Correct! Correct!
Total operating profit
Total contribution margin
Total fixed costs
Correct!
Basic Classic Formal
60,000$ 116,000$ 570,000$
20,000 10,000 30,000
3.000$ 11.600$ 19.000$
0.7 2 7
4.286$ 5.800$ 2.714$
Correct! Correct! Correct!
Classic «- Correct!
10,000
2
20,000
Units produced of second most profitable
Total units produced
Labor hours per unit
Units produced of next most profitable product
Units produced of most profitable
Next most profitable product: (enter name)
Remaining available labor hours
Correct!
Labor hours per unit
Total labor hours for most profitable product
Hours allowed per unit
Contribution margin per labor hour
Most profitable product per labor hour: (enter name):
Units produced to meet demand
Total contribution margin
Total demand
Contribution margin per unit
Total costs
Contribution margin
AUSTIN ENTERPRISES
Problem 04-71
Requirement c:
Requirement b:
Requirement a:
Total revenue
Less variable manufacturing costs:
Direct materials
Direct labor
Variable overhead
Variable marketing
Basic Classic Total
428,550$ 640,000$ 1,068,550$
142,850$ 60,000$ 202,850$
159,992 320,000 479,992
39,998 80,000 119,998
42,855 64,000 106,855
385,695 524,000
42,855$ 116,000$ 158,855$
Correct! Correct! 74,000
84,855$
Correct!
Basic Classic Formal
3.00$ 11.60$ 19.00$
Demand (for profitable products only)
Present production (from Requirement c)
Amount to produce on new shift
Contribution margin per unit of new production
Additional operating profit (rounded)
Additional labor cost at higher rate
Hours to produce one unit
Contribution per labor hour for extra cost
New contribution margin per labor hour
Contribution margin
Total fixed costs
Total operating profit
Contribution margin per unit
Direct materials
Direct labor
Variable overhead
Variable marketing
Total costs
Total revenue
Less variable manufacturing costs:
Decision to add shift to product more Basic and/or Formal
Requirement e:
Requirement d:
Direct labor costs per hour including extra shift
Additional production hours provided by running extra shift
Requirement e:
Maximum direct labor-hours per year
Additional Information:
Sales price
Given Data P04-71:
AUSTIN ENTERPRISES
Direct labor (hours)
Direct material (yards)
Product information:
Input requirement per unit
Maximum annual demand (units)