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P9. [LO 1, 2]
a. Effect of dropping accelerators:
Lost contribution margin $(310,000)
b. Conceivably, dropping accelerators would decrease sales of other products.
P10. [LO 1]
Contribution margin of fescue
P11. [LO 1]
a. Effect of dropping Model 599 fan:
b. The Model 599 fan has relatively high direct labor cost per unit. Since all
Jiambalvo Managerial Accounting
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P12. [LO 1]
a. Standard Deluxe Total
Yards of carpet 45,000 75,000 120,000
Deluxe
b. Yards of carpet 75,000
c. In many if not most cases, common costs will not be reduced when a product or
P13. [LO 2]
a. Joint cost ($35 + $100) $135.00
Allocation based on weight
Veneer (10 lbs. ÷ 70 lbs.) $135 $ 19.29
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c. Allocation based on relative sales value:
Veneer ($150 ÷ $200) $135 $ 101.25
P14. [LO 2]
a. Allocation based on relative sales values at the split-off point:
Sales value of 100 pounds of orange peels $350
Sales value of 300 pints of juice
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b. Incremental revenue of sugar coating
c. c. Incremental revenue of packaged juice:
P15. [LO 2]
a. Allocation based on weight:
Type Weight (lbs.) Percent
Salmon 15,000 20%
Salmon
Halibut
Flounder
b. Allocation based on relative sales value:
*Note that numbers are rounded to three decimal places.
Salmon
Revenue
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Halibut
Revenue
(23,000 lbs. $6.00) $138,000
c. Incremental revenue
Revenue of paste
Given that there is a net incremental cost of $10,000, Gavin should not convert the
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P16. [LO 2]
a. Allocation based on weight:
Type Weight (lbs.) Percent
Copper
Revenue
(62,500 lbs. $2.50) $ 156,250
Gold
Revenue
b. Allocation based on relative sales value:
Type Sales Value Percent
Copper
Revenue
(62,500 lbs. $2.50) $156,250
P17. [LO A1]
a. Additional units in 8 hour shift (2,300 – 2,000) 300
defects compared to a small batch size.
P18. [LO 1and A1]
Based on the company president’s comment that the two workers will be
Case 7-1 [LO 1, 2]
PRIMUS CONSULTING GROUP
Summary
A consulting firm is considering a client offer of a fee that is less than standard rates.
• Indicates that even direct labor costs can be irrelevant to a short run decision.
Questions to ask students
1. What is the situation facing Primus Consulting Group?
2. What will be the affect on company profit of accepting the Northwood job?
3. What qualitative factors should be considered in the decision as to whether or not to
accept the job?
Discussion
What is the decision facing Primus Consulting Group? Primus is considering an offer to
conduct a study aimed at improving on-time delivery for Northwood Industries.
Northwood has offered a flat $75,000 for the job which is less than the $87,350 that
Primus would charge at normal rates. However, Primus has excess capacity.
Incremental revenue $75,000
Incremental costs:
What qualitative factors should be considered in the decision as to whether or not to
accept the job? Before accepting this job, Primus must consider a number of qualitative
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Case 7-2 [LO A1]
FIVE STAR TOOLS
Summary
Tool manufacturer is faced with production constraints.
• Focuses on various ways to loosen constraints.
Questions to ask students
a. What is the situation facing Five Star Tools?
b. What steps can be taken to loosen the constraint in coating and sharpening?
Discussion
1. What is the decision facing Five Star Tools? Five Star Tools has a bottleneck in
2. What steps can be taken to loosen the constraint in coating and sharpening?
Students are likely to suggest a number of alternatives, which I put up on the
board. They may include:
o Adding an inspection station before coating and sharpening so valuable
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3. Which product should be “emphasized” (C210 Chisel or D400 Chisel) given the
constraint in coating and sharpening? The model C210 should be emphasized
because it generates a higher contribution margin per unit of the constraint.
Model C210 Model D400
4. Focusing only on the Model C210 and Model D400 chisels, what would be the
5. What would be the incremental profit associated with adding an inspection