Q1

i.
Direct Material $ 40
Direct labor 20
Manufacturing support 35
Marketing cost 15
Fixed cost
Manufacturing support 45
Marketing cost 15
Full cost of product per unit 170
ii.
Contribution margin per unit
Total selling price-(D.M+D.L+M.S+M.C)
$255-($40+20+35+15)
=$145
iii.
Minimum acceptable price of order= $40+20+35+15=$110
iv.
$180-($40+20+35+15) =$70
$1000*70=70000

Q2
i.
Direct material 40,000
Direct labor 10,000
F.O.C 20,000*10%=2000
V.O.C 30,000
Total avoidable costs 82,000

ii.
Purchase cost from outside supplier
(1000*85) 85,000
Avoidable cost 82,000
Decrease 3000

iii.

Direct material 40,000

Direct labor 10,000
F.O.C 20,000*10%=2000
V.O.C 30,000
Total avoidable costs 82,000
No of units produced 1000
Max price per unit 82000\1000= $82

Q3
I.

Model X Model Y Model Z

Selling price 50 60 70
Direct materials 6 6 6
Direct labor 12 12 24
Variable support cost 4 4 8
Total variable cost (22) (26) (38)
Contribution margin 28 34 32
per unit

Model Z has highest contribution margin per unit

II.
Model X Model Y Model Z
Contribution margin per unit 28 34 32
Total machine hours 1 2 2
Contribution margin per 28 17 16
machine

III.
Model Y is the most profitable

IV.
Model Y is more profitable to produce if there is machine breakdown.

Q4

a)
Contribution margin per hour
$500-200-30=$270
$270\100= $2.70

b)
Small chairs should be produced first if management incorporates a short-run profit
maximizing strategy.
c)
Small Medium Large
No of units produced 100 0 40
Machine hour per unit 20 40 100
Machine hours required 2000 0 4000

Q5
a.
Product C
Sales 24000
Variable cost (15000)
Avoidable cost (6000)

Operating income 3000

b.
Rent 12000
Operating income 3000
9000

Q6
1.

Direct material 33
Direct labor 15
Var manufacturing support 24
Fixed manuf support 52
Total cost of product 124

2.
Selling price 186
Direct material 33
Direct labor 15
Var. manufacturing support 24
Total var.cost (72)
Contribution margin per unit 114

3.
Variable cost is relevant in making the decision regarding one-time special order
because management generally considers variable costs in production not the fixed
cost as it doesn't impact the decision.
4.
$72 is minimum acceptable price for one-time special order.

5.
Yes, they should accept one-time special order,because a company can earn sufficient
profit of $28 per unit.

Q7

1) Variable costs= ($130+125+60)=$315

2) Silver lake should consider the impact on recent customers, when they came to
know other customers are offered discount.
3) In case of limited capacity, incremental costs will increase so they shouldn’t
accept it.
Q8
1. Total avoidable costs= ($45,000++15000+35000+25000*60)=110,000
2. Quiett Truck should-not outsource because (10000*11.20)=112,000 is greater
than 110,000 (production cost). Outsourcing will cost company extra $2000.
3. Company should consider quality and timely delivery in competition.
 Q9
1.
Cost to buy the part
(1000*1250) 1,250,000
Direct material
(1000*500) 500,000
Direct labor
(1000*250) 250,000

Var. Manufacturing overhead

( 1000*200) 200,000 1,055,000

fixed cost 105,000 _______

$195,000
Company should make the motors.

2.
Company should consider qualitative factors like quality,reputation,delivery and
facilities in terms of opportunity cost.

Q10
1)
Direct material 0.6
Direct manufacturing labor 3
Var. Manufacturing overhead 1.2
Fixed manufacturing overhead 1
Total relevant cost per unit 5.8

2)
Total cost 58000
In case of outsourcing
Total cost 60000
Savings 9000
Cost 51000
Gain/loss 7000

Q11
1. Relevant cost per unit
$12+60+24+20=116
2.
Cost if buy
Total cost (10,000*120) 1200,000
Fixed cost 10000*(32-20) 120,000
Savings (180,000)
Total cost 11,40,000
Cost if manufactured
(10,000*128) 128,000
Buying will be best option as 11,40,000-128,000= $140,000
 Q12

a) Contribution margin per unit (model X)

$80-30-15-5=$30
Model Y
$90-30-15-10=$35
Model Z
$100-30-20-10=$40
b) Contribution margin machine per hour
Model X (30/1.0)=$30
Model Y (35/2.0)= $17.50
Model Z ($40/2.0)= $20
c) When there is excess capacity model Z, is more profitable to produce because it
has more contribution margin.
d) Model X is more profitable to produce if there is machine breakdown as it
contributes towards more fixed cost.
e) Norton can encourage sales people to promote the products and provide them
more incentives for their motivation.

Q13

Sales (1,000 units) $250,000

Manufacturing costs:
Direct materials $140,000

Direct labor ($15 per hour) 30,000

Support (100,000*70%) 70,0000
Total var. Costs 240,000
__________
Operating loss 10,000

Hackerott Camera should not eliminate the model because it will suffer 10,000 loss
by eliminating it.

Q14
1. $25,000-15000-3000-3000=(4000)
Candy product line should not be discontinued as company will suffer loss of $4000.
2. $40,000-26,000-2000-3000=9,000
If chocolate lines were discontinued company current years profit would be
decreased by $9000.

Q15

i. Minimum acceptable price = $30+10+15+5=$60

ii. Full cost of product per unit =$30+10+15+5+60+100+20=180
iii. Quoted price will be $66