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Category: Business and Industry
Date Submitted: 03/07/2013 07:35 AM
CHAPTER 11
DECISION MAKING AND RELEVANT INFORMATION
11-18 (15 min.) Multiple choice.
1. (b) Special order price per unit $6.00
Variable manufacturing cost per unit 4.50
Contribution margin per unit $1.50
Effect on operating income = $1.50 20,000 units
= $30,000 increase
2. (b) Costs of purchases, 20,000 units $60 $1,200,000
Total relevant costs of making:
Variable manufacturing costs, $6 + $30 + $12 $48
Fixed costs eliminated 9
Costs saved by not making $57
Multiply by 20,000 units, so total
costs saved are $57 20,000 1,140,000
Extra costs of purchasing outside 60,000
Minimum overall savings for Reno 25,000
Necessary relevant costs that would have
to be saved in manufacturing Part No. 575 $ 85,000
11-19 (30 min.) Special order, activity-based costing.
1. Direct materials cost per unit ($262,500 7,500 units) = $35 per unit
Direct manufacturing labor cost per unit ($300,000 7,500 units) = $40 per unit
Variable cost per batch = $500 per batch
Award Plus’ operating income under the alternatives of accepting/rejecting the special order are:
Without One-Time Only Special Order
7,500 Units With One-Time Only Special Order
10,000 Units
Difference
2,500 Units
Revenues $1,125,000 $1,375,000 $250,000
Variable costs:
Direct materials 262,500 350,0001 87,500
Direct manufacturing labor 300,000 400,0002 100,000
Batch manufacturing costs 75,000 87,5003 12,500
Fixed costs:
Fixed manufacturing costs 275,000 275,000 ––
Fixed marketing costs 175,000 175,000 ––
Total costs 1,087,500 1,287,500 200,000
Operating income $ 37,500 $ 87,500 $ 50,000
1$262,500 + ($35 2,500 units) 2$300,000 + ($40 2,500 units) 3$75,000 + ($500 25 batches)
Alternatively, we could calculate the incremental revenue and the incremental costs of the additional 2,500 units as follows:
Incremental revenue $100 ...