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Hilton CH 14 Select Solutions
Hilton CH 14 Select Solutions
Sales..
Less: Variable costs.
Contribution margin.
Paint and
Supplies
Carpeting
Wallpaper
$190,000
114,000
$ 76,000
$230,000
161,000
$ 69,000
$ 70,000
56,000
$ 14,000
This cost should be ignored. The inventory cost is sunk (i.e., a past cost that is
not relevant to the decision). Regardless of whether the department is closed,
Contemporary Trends will have a wallpaper inventory of $11,850.
3.
Complete sets..................................
Dress and accessory cape..............
Dress and handbag.........................
Dress only........................................
Total units if additional items are
introduced......................................
Less: Unit sales if additional items
are not introduced.........................
Incremental sales............................
Incremental contribution margin
per unit (excluding material and
cutting costs).................................
Total incremental contribution
margin.............................................
Percent
of Total Dresses
70%
1,050
6%
90
15%
225
9% 135
100%
Total Number of
Accessory
Capes
Handbags
1,050
1,050
90
225
1,500
1,140
1,275
1,250
250
-1,140
--
1,275
$192.00
$48,000
Additional costs:
Additional cutting cost
(1,500 91% $14.40)................
Additional material cost
(250 $80.00)...............................
Lost remnant sales
[(1,250 135) $8.00].................
Incremental cutting for
extra dresses (250 $32.00).......
Incremental profit............................
2.
$12.80
$14,592
Total
$4.80
$6,120
$68,712
$19,656
20,000
8,920
8,000
56,576
$12,136
Qualitative factors that could influence the companys management team in its
decision to manufacture matching accessory capes and handbags include:
accuracy of forecasted increase in dress sales.
accuracy of forecasted product mix.
50,000
20,000
30,000
15,000
Conclusion: Manufacture
Manufacture
Purchase
PROBLEM 14-46 (CONTINUED)
2.
20,000 blenders
15,000 food processors
13,000 food processors
If the companys management team is able to reduce the direct material cost per
food processor to $18 ($15 less than previously assumed), then the cost savings
from manufacturing a food processor are $33 per unit ($18 savings computed in
requirement (1) plus $15 reduction in material cost):
Food
Blender Processor
$12.00
$33.00
1 MH 2 MH
$12.00
$16.50
Therefore, devote all 50,000 hours to the production of 25,000 food processors.
Conclusion:
2.
$ 45,000
9,000
$ 54,000
$ 3,000
600
24,000
12,000
$ 39,600
$ 14,400
$144,000
75,000
$ 69,000
$156,000
144,000
$ 12,000
Cost of
10,000 Unit
Assembly Run Per Unit
$ 180,000
$ 18
450,000
45
450,000
45
$1,080,000
$108
Enhanced
$375.00
$495.00
$42.00
22.50
36.00
$67.50
30.00
48.00
37.50
49.50
138.00
$237.00
195.00
$300.00
2.
3.
Martinez, Inc. expects to sell 10,000 Standard units (40,000 units x 25%) or 8,000
Enhanced units (40,000 units x 20%). On the basis of this sales forecast, the
company would be advised to select the Standard model.
4.
Standard
Enhanced
$2,400,000
300,000
$2,100,000
2.
Deluxe
Model
$130
40
30
24
$ 94
$ 36
Pro
Model
$160
38
40
32
$110
$ 50
When labor is in short supply the Basic model should be manufactured, since it
has the highest contribution margin per direct-labor hour.
Basic
Model
Contribution margin per unit .............................................. $48
Direct-labor hours required ................................................. 1
Contribution margin per direct-labor hour ........................ $48
Deluxe
Model
$36
1.5
$24
Pro
Model
$50
2
$25
$31.50
$12.20
4.50
7.50
24.20
$ 7.30
$80,300
$7,400
4,800
12,200
$68,100
5,500