Solution a:
Per gallon | |
Raw Materials | $3.06 |
Direct Labor | $2.17 |
Variable Overhead | $2.11 |
Distribution | $1.52 |
Total relevant costs per gallon | $8.86 |
Solution b:
Computation of Increase in Operating income from special Order | |
Special order Price | $10.00 |
Less:Relevant cost per gallon | $8.86 |
Contribution Margin per gallon | $1.14 |
Number of gallons in special order | 475 |
Increase in operating Income | $541.50 |
Solution c-1:
Per gallon | ||
Current Sales | $13.00 | |
Less: Variable cost | ||
Raw Materials | $3.06 | |
Direct Labor | $2.17 | |
Variable Overhead | $2.11 | |
Distribution | $1.05 | |
$8.39 | ||
Current Contribution Margin | $4.61 |
Total Relevant Cost = $8.86 + $4.61 = $13.47
Solution c-2:
Decrease in Operating income = 475 * (Special Order price - Total relevant cost)
= 475 *($10 - $13.47) = $1648.25
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