1

Lost contribution margin (27,000.00)

Depreciation of special equipment 8,000.00
Advertising traceable 6,000.00
Salary of product line manager 10,000.00

Decrease in net operating income as a whole (3,000.00)

The production and sale of the racing bikes should not be discontinued because the company's net operating income as
decrease by 3,000 each quarter.

2 Total Dirt Bikes

Sales 300,000.00 90,000.00
Variable manufacturing & selling expenses 120,000.00 27,000.00
Contribution margin 180,000.00 63,000.00
Traceable fixed expenses:
Advertising 30,000.00 10,000.00
Depreciation of special equipment 23,000.00 6,000.00
Salaries of the product line managers 35,000.00 12,000.00
Total traceable fixed expenses 88,000.00 28,000.00
Product line segment margin 92,000.00 35,000.00
Common fixed expenses 60,000.00
Net operating income 32,000.00
company's net operating income as a whole would

Mountain Bikes Racing Bikes

150,000.00 60,000.00
60,000.00 33,000.00
90,000.00 27,000.00

14,000.00 6,000.00
9,000.00 8,000.00
13,000.00 10,000.00
36,000.00 24,000.00
54,000.00 3,000.00
1
Make Buy
Direct Material 14.00
Direct Labor 10.00
Variable manufacturing overhead 3.00
Fixed overhead avoidable 4.00
Supplier cost - 35.00
Total cost per unit 31.00 35.00

Disadvantage per unit (4.00)

No. of units 15,000
Total disadvantage cost (60,000.00)

Therefore, the company should reject the outside supplier's offer as it results financial disadvantage of
60,000 of buying from supplier.

2 Make Buy
Direct Material 14.00
Direct Labor 10.00
Variable manufacturing overhead 3.00
Fixed overhead avoidable 4.00
Supplier cost - 35.00
Total cost per unit 31.00 35.00
No. of units 15,000 15,000
465,000.00 525,000.00
Alternate segment margin - 150,000.00
Total relevant cost 465,000.00 375,000.00

Make 465,000.00
Buy 375,000.00
Total Advantage cost 90,000.00

Therefore, the company should accept the outside supplier's offer as it result a financial advantage of
90,000 of buying from supplier.
1 Special order
Sales Price 3,399.00
Direct Materials 86.00
Direct Labor 45.00
Variable overhead 4.00
Total cost per unit 135.00
No. of special order 20
Total cost 2,700.00
Special tool 250.00 -
Total cost of special order 2,950.00
Income from special order 449.00

There will be an increase of 449 to the company's net income if they will accept the special
order. It should be accepted at the special price of $169.95 per bracelet.
1
A B C
Contribution margin per unit 54.00 108.00 60.00
Direct material cost per unit 24.00 72.00 32.00
Direct material cost per pound 8.00 8.00 8.00
Pounds of material required per unit 3 9 4
Contribution margin per pound 18.00 12.00 15.00

2
A B C
Contribution margin per pound 18.00 12.00 15.00
Pounds of material available 5,000 5,000 5,000
Total contribution margin 90,000.00 60,000.00 75,000.00

Product A is the first priority because it has the highest contribution margin. Second is product C. And third is product B.

If there is unfilled demand for all three products, the highest price that Barlow Company would be willing to pay is $26
per pound. Each pound of raw materials used in Product A generates $18 contribution margin over and above usual cost
of raw materials which is $8. Thus, the upper limit of $26 per pound to manufacture more Product A signals to managers
how valuable additional raw materials are to the company.
 C. And third is product B.

d be willing to pay is $26

over and above usual cost
duct A signals to managers
1 Product A Product B
Selling price after further processing 20.00 13.00
Selling price at split-off point 16.00 8.00
Incremental revenue per pound or gallon 4.00 5.00
Total quarterly output in pounds or gallon 15,000.00 20,000.00
Total incremental revenue 60,000.00 100,000.00
Total incremental processing costs 63,000.00 80,000.00
Total incremental profit or loss (3,000.00) 20,000.00

Product A and Product C should be sold at split-off point.

Product B should be processed further.
Product C
32.00
25.00
7.00
4,000.00
28,000.00
36,000.00
(8,000.00)