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QUANTITATIVE ANALYSIS
QUALITATIVE CONSIDERATIONS
3. Correct analysis:
Sincerely,
1. Relevant data:
Irrelevant data:
If If
Packagi Packagin
ng g
*
Continues to manage
Packaging Department.
Additional comment:
$5,600
= = 8,000 jars
$.70
The most profitable product is the one that yields the highest
contribution margin per unit of the scarce resource, which is
direct labor. We do not know the amount of direct-labor time
required per unit of either product, but we do know that Dos
requires six times as much direct labor per unit as Uno. Define
an arbitrary time period for which direct laborers earn $1.00,
and call this a time unit. The two products contribution
margins per time unit are calculated as follows:
Uno Dos
Unit contribution margin .................... $3.00 $12.00
Time units required per unit of product 1 6
Contribution margin per time unit
Uno: ($3.00 1) .............................. $3.00
Dos: ($12.00 6) ............................. $2.00
1. Decision variables:
2. Objective function:
Maximize 3X + 12Y
3. Constraints:
Maximize 3X + 12Y
1X + 2Y 8,000
Kreolite- Kreolite-
Red Blue
Price ................................ $36 $42
Unit variable cost ............. 28 28
Unit contribution margin . . $8 $14
Maximize 8X +
14Y
Subject 2X + 24
to: 2Y
1X + 24
3Y
X, Y 0
X=0 Y=0 $ 0
X = 12 Y=0 96
Graphical solution:
25
20
15
Machine I
constraint
10 Optimal solution (X = 6, Y
= 6)
Objective function
Machine II
5 constraint
Feasibl
e
region
X
5 10 15 20 25
1.
Electri
Blend c
er Mixer
Unit cost if purchased from an outside $20
supplier ...................................................... $38
Incremental unit cost if manufactured:
Direct material ......................................... $6 $11
Direct labor .............................................. 4 9
Variable overhead
$16 $10 per hour fixed ........................ 6
$32 (2)($10 per hour fixed) .................. 12
Total ..................................................... $16 $32
Unit cost savings if manufactured ................ $4 $6
Machine hours required per unit .................. 1 2
Cost savings per machine hour if
manufactured
$4 1 hour .............................................. $4
$6 2 hours ............................................. $3
Electri
Blend c
er Mixer
New unit cost savings if manufactured ....... $4.00 $11.00
Machine hours required per unit ................ 1 MH2 MH
Cost savings per machine hour if
manufactured
$4 1 hour ............................................. $4.00
$11 2 hours ......................................... $5.50
Selling $15.
price 75
Less: Direct material ($8.20 - $2.10) $6.1
. 0
Direct 2.2
labor 5
..
Variable manufacturing
overhead 3.7 12.
(.5 hours x $7.50*) 5 10
..
Unit contribution $
margin. 3.65
McGraw-Hill/Irwin 2002 The McGraw-Hill Companies,
Inc.
Managerial Accounting, 5/e 14-31
Total contribution margin (11,000 $40,
units x $3.65).. 150
Less: Additional set-up $3,7
costs 00
Special 2,4 6,
device 00 100
.
Net contribution to $34,
profit. 050
Selling $2 $3
price 50 30
...
Less: Variable costs:
Direct $2 $4
material. 8 5
Direct 1 2
labor.. 5 0
Variable manufacturing 2 3
overhead 4 2
Sales commission
McGraw-Hill/Irwin 2002 The McGraw-Hill Companies,
Inc.
Managerial Accounting, 5/e 14-33
$250 x 10%; $330 x 2 3
10%. 5 3 1
Total unit variable 92 30
cost
Unit contribution $1 $2
margin 58 00
Basic Enhanc
ed
Total contribution margin:
10,000 units x $158; 8,000 $1,580, $1,600,
units x $200. 000 000
Less: Marketing and 130, 200,
advertising 000 000
Income $1,450, $1,400,
... 000 000
Paint
and Carpet Wallpa
Suppli ing per
es
Competence
Integrity
Objectivity
Total Number of
Perc
ent
of Dress Cape Handbag
Total es s s Total
Complete sets.............. 70% 1,05
1,050 0 1,050
Dress and cape............. 6% 90 90
Dress and handbag....... 15% 225 225
Dress only.................... 9%
135
Total units if
accessories are 100 1,14
introduced.................. % 1,500 0 1,275
Less: Unit sales if
accessories are
not introduced............ 1,250
Incremental sales......... 1,14
250 0 1,275
Incremental
contribution margin
per unit (excluding
material and
cutting costs).............. $120 $8 $3
Total incremental
contribution $30,0 $9,1 $42,9
margin........................ 00 20 $3,825 45
Additional costs:
Additional cutting cost
(1,500 $9).............. $13,500
Additional material
cost
(250 $50)............... 12,500
Lost remnant sales
(1,250 $5).............. 6,250
McGraw-Hill/Irwin 2002 The McGraw-Hill Companies,
Inc.
Managerial Accounting, 5/e 14-45
Incremental cutting
for
extra dresses (250 37,25
$20)............................. 5,000 0
Incremental profit........ $
5,695
Current Combine
Monthly d
Production Special Productio
Order n
Units produced ............ 1,875 625 2,500
Sales ........................... $ 656,250a $125,0b $
00 781,250
Variable costs: .............
Direct labor ............... $ 187,500
$62,50c $
0 250,000
Direct material .......... 131,250 43,750d 175,000
Marketing ................. 93,750 93,750
Total variable costs . $ 412,500 $106,2 $
50 518,750
Fixed costs:
Manufacturing ........... $ 137,500 $
137,500
Marketing ................. 87,500 87,500
Total fixed costs ..... $ 225,000 $
225,000
Total costs ................... $ 637,500 $106,2 $
50 743,750
Income before tax ........ $ 18,750 $ $
18,750 37,500
2.
T79 B81
Purchase price quoted ............................... $11. $13.
25 50
Direct material .......................................... $ $
2.25 3.75
Direct labor ............................................... 4.00 4.50
Variable overhead .....................................
2.00 2.25
Total variable cost ..................................... $ $10.
8.25 50
1.
Sell to
Kaytel Conve
l rt Sell as
as to Specia
Specia Stand l
l ard Order
Order Model as Is
Sales price ........................$68,40 $62,50 $52,00
0 0 0
Less cash discount ............ -
1,250
Net price ..........................$68,40 $61,25 $52,00
0 0 0
Additional manufacturing
costs
Direct material ............... $ $ $
6,200 2,850
Direct labor ....................
4,200 3,300
Variable manufacturing
overhead ............................. 2,100 1,650
Total additional $12,50 $ $
manufacturing costs ............ 0 7,800
Commissions ....................
2,052 1,250 1,560
Total costs and expenses . .$14,55
2 9,050 1,560
Net contribution ..................$53,84 $52,20 $50,44
8 0 0
2.
Contribution from sale to Kaytell .... $53,848
Contribution from next best
alternative:
sell as standard model .................. 52,200
Difference in contribution .............. $1,648
Current Combine
Monthly d
Production Special Productio
Order n
Units produced ............
7,500 2,500 10,000
Sales ...........................$1,312,5a $250,0b $1,562,5
00 00 00
Variable costs: .............
Direct labor ............... $ $125,0c $
375,000 00 500,000
Direct material .......... 262,500 d 350,000
87,500
Marketing .................
187,500 187,500
Total variable costs . $ $212,5 $1,037,5
825,000 00 00
Fixed costs:
Manufacturing ........... $ $
275,000 275,000
Marketing .................
175,000 175,000
Total fixed costs ..... $ $
450,000 450,000
Total costs ...................$1,275,0 $212,5 $1,487,5
00 00 00
Income before tax ........ $ $ $
37,500 37,500 75,000
Department
Product 1 2 3 4
M07 ................................. 500 500 1,000 1,000
T28................................... 400 400 800
B19 .................................. 2,000 2,000 1,000 1,000
Total required .................. 2,900 2,900 2,000 2,800
Total available .................. 3,000 3,100 2,700 3,300
Excess (deficiency) ........... 100 200 700 500
Department
Product 1 2 3 4
M07 ................................. 1,000 1,500 1,500 500
T28................................... 400 800 800
B19 .................................. 2,000 2,000 2,000 1,000
Total required .................. 3,400 4,300 3,500 2,300
Total available .................. 3,700 4,500 2,750 2,600
Excess (deficiency) ........... 300 200 (750) 300
Contribution
Contribution Department 3 Margin
Product Margin DLH per DLH
M07 $93 3 $31
B19 70 2 35
Department 3
DLH
Units Required Balance (DLH)
Maximum DLH
available
in Department 3 2,750
Product B19 first 1,000 2,000 750
Product M07 -0-
second 250 750
Notation:
Venus
600
500
400
Mixingdepartmentconstraint Material constraint
300 Objectivefunction
Feasible Coatingdepartmentconstraint
region
100
Comet
100 200 300 400 500 600
Subject 2P + H 60
to: (preparation)
2P + 3H 120
(cooking)
P 45 (freezing)
P 0
H0
Haute Cuisine
70
60 Preparation
constraint
Objective function
50
40
20
Feasible
region
10
Cooking
constrai
nt
Premier
10 20 30 40 50 60Cuisine
3. & 4.
70
Objective function
60
50
Cooking
constrain
t
40
Freezing
constraint
30
20
Optimal solution
Feasible (P = 45, H = 10)
region
10
Premier
10 20 30 40 50 60 Cuisine
2. Notation:
a. Objective function: *
Maximize $10.30 RL + $11.65 RA + $18.55 DL + $19.90 DA
RL RA DL DA
Selling price................... $45.00 $45.00 $60.00 $60.00
Less: Variable costs:
Raw material............... $22.00 $22.00 $28.75 $28.75
Plating labor............... 2.00 2.00 2.00 2.00
Assembly labor............ 3.00 .60 3.00 .60
Plating supplies........... 1.25 1.25 1.25 1.25
Assembly supplies....... 1.50 1.50 1.50 1.50
Plating power.............. 1.20 1.20 1.20 1.20
Assembly power.......... .75 1.80 .75 1.80
Selling........................ 3.00 3.00 3.00 3.00
Total variable cost......... $34.70 $33.35 $41.45 $40.10
Contribution margin.... $10.30 $11.65 $18.55 $19.90
b. Constraints:
Direct labor (plating): .2 RL + .2 RA + .2 DL + .2 DA
30,000 hours
Direct labor (assembly): .25 RL + .05 RA + .25 DL + .05
DA 40,000 hours
Machine hours (plating): .15 RL + .15 RA + .15 DL + .15
DA 25,000 hours
Machine hours (labor assembly): .02 RL +.02 DL
1,500 hours
Machine hours (automated assembly): .05 RA + .05 DA
5,000 hours
Sales contract (regular): RL + RA 35,000 units
Sales contract (deluxe): DL + DA 35,000 units
All variables nonnegative: RL, RA, DL, DA 0
Purcha
sed Manufactured
Tackle Skate-
Boxes Tackle board
Boxes s
Selling price ............................ $86.00 $86.00 $45.00
Less:
Material ................................ (68.00) (17.00 (12.50
) )
Direct labor ........................... (18.75 (7.50)
)
Manufacturing overhead* .....* (6.25) (2.50)
Selling and administrative (4.00) (11.00
=
cost ........................................ ) (3.00)
Contribution margin ................. $14.00 $33.00 $19.50
*Calculation of variable
overhead per unit:
=
In calculating the contribution margin, $6.00 of fixed
overhead cost per unit for distribution must be deducted
from the selling and administrative cost.
1 Memorandum
.
Date: Today
Increase (decrease) in
units*
E-gauge:10,000 (5,000)
50% .............................
Q-gauge:8,000 15%
.................................... 1,200
R-gauge:5,000 (5,000
100% ........................... )
Increase (decrease) in
total
contribution margin .... $(95,000) $88,800 $0
Decrease (increase) in
)
fixed costs 80,000= (100,000 40,000
Increase (decrease) in
segment
contribution ................ $(15,000) $(11,200) $40,000
$100,000 $20,000
E-Gauge Q-Gauge
Unit contribution ........................... $19.00 $74.00
Contribution per direct-labor dollar .95 1.85
ISSUE 14-67
ISSUE 14-68
ISSUE 14-69
ISSUE 14-70