1)
Product A | Product B | Total | |||
Sales in units | 15000 | 10000 | |||
Selling Price per unit | 100 | 160 | |||
Sales Revenue (A) | $ 15,00,000 | $ 16,00,000 | $ 31,00,000 | ||
Variable Cost | |||||
Manufacturing cost | |||||
50% of $1500000 | $ 7,50,000 | $ 7,50,000 | |||
50% of $ 1600000 | $ 8,00,000 | $ 8,00,000 | |||
Sales commissions | |||||
20% of $1500000 | $ 3,00,000 | $ 3,00,000 | |||
20% of $ 1600000 | $ 3,20,000 | $ 3,20,000 | |||
Total Variable Cost (B) | $ 10,50,000 | $ 11,20,000 | $ 21,70,000 | ||
Contribution (A - B) - (C) | $ 4,50,000 | $ 4,80,000 | $ 9,30,000 | ||
Less: Traceable cost: | |||||
Advertisement | $ 1,00,000 | $ 1,20,000 | $ 2,20,000 | ||
Other Fixed costs | $ 1,40,000 | $ 1,40,000 | $ 2,80,000 | ||
Total Traceable fixed cost (D) | $ 2,40,000 | $ 2,60,000 | $ 5,00,000 | ||
Segment Margin (C - D) | $ 2,10,000 | $ 2,20,000 | $ 4,30,000 | ||
Less: Common Fixed Cost | $ 2,00,000 | ||||
(as allocated) | |||||
Operating Income for the Adm2341 Co. | $ 2,30,000 |
Working Note:
Product A | Product B | Total | |
Other Fixed Cost | $ 2,40,000 | $ 2,40,000 | $ 4,80,000 |
Less: Allocated General overhead | $ 1,00,000 | $ 1,00,000 | $ 2,00,000 |
Traceable Fixed Cost | $ 1,40,000 | $ 1,40,000 | $ 2,80,000 |
2)
Product A | Total | ||
Sales in units | 15000 | ||
Selling Price per unit | 100 | ||
Sales Revenue (A) | $ 15,00,000 | $ 15,00,000 | |
Variable Cost | |||
Manufacturing cost | |||
50% of $1500000 | $ 7,50,000 | $ 7,50,000 | |
50% of $ 1600000 | $ - | ||
Sales commissions | |||
20% of $1500000 | $ 3,00,000 | $ 3,00,000 | |
20% of $ 1600000 | $ - | ||
Total Variable Cost (B) | $ 10,50,000 | $ 10,50,000 | |
Contribution (A - B) - (C) | $ 4,50,000 | $ 4,50,000 | |
Less: Traceable cost: | |||
Advertisement | $ 1,00,000 | $ 1,00,000 | |
Other Fixed costs | $ 1,40,000 | $ 1,40,000 | |
Total Traceable fixed cost (D) | $ 2,40,000 | $ 2,40,000 | |
Segment Margin (C - D) | $ 2,10,000 | $ 2,10,000 | |
Less: Common Fixed Cost | $ 2,00,000 | ||
(as allocated) | |||
Operating Income for the Adm2341 Co. | $ 10,000 |
Annual Operating Income for the company will decrease by $2,30,000 - $10,000 = $2,20,000
Dropping of B is not recommended as it is generating a positive segment margin of $ 2,20,000
3)
Product A | Total | ||
Sales in units | 15000 | ||
Selling Price per unit | 100 | ||
Sales Revenue (A) | $ 17,00,000 | $ 17,00,000 | |
Variable Cost | |||
Manufacturing cost | |||
50% of $1500000 | $ 8,50,000 | $ 8,50,000 | |
50% of $ 1600000 | $ - | ||
Sales commissions | |||
20% of $1500000 | $ 3,40,000 | $ 3,40,000 | |
20% of $ 1600000 | $ - | ||
Total Variable Cost (B) | $ 11,90,000 | $ 11,90,000 | |
Contribution (A - B) - (C) | $ 5,10,000 | $ 5,10,000 | |
Less: Traceable cost: | |||
Advertisement | $ 1,00,000 | $ 1,00,000 | |
Other Fixed costs | $ 1,40,000 | $ 1,40,000 | |
Total Traceable fixed cost (D) | $ 2,40,000 | $ 2,40,000 | |
Segment Margin (C - D) | $ 2,70,000 | $ 2,70,000 | |
Less: Common Fixed Cost | $ 2,00,000 | ||
(as allocated) | |||
Operating Income for the Adm2341 Co. | $ 70,000 |
The operating income will decrease by $2,30,000 - $70,000 = $1,60,000
The increase in sale of A by $200000 will increase the Contribution by $510000 - $450000 = $60000 whereas there will be a loss of contribution by $480000 because of dropping of Product B.
4)
Product A | Product B | Total | |||
Sales in units | 15000 | 10000 | |||
Selling Price per unit | 100 | 160 | |||
Sales Revenue (A) | $ 15,00,000 | $ 16,00,000 | $ 31,00,000 | ||
Variable Cost | |||||
Manufacturing cost | |||||
50% of $1500000 | $ 7,50,000 | $ 7,50,000 | |||
50% of $ 1600000 | $ 8,00,000 | $ 8,00,000 | |||
Sales commissions | |||||
20% of $1500000 | $ 3,00,000 | $ 3,00,000 | |||
20% of $ 1600000 | $ 3,20,000 | $ 3,20,000 | |||
Total Variable Cost (B) | $ 10,50,000 | $ 11,20,000 | $ 21,70,000 | ||
Contribution (A - B) - (C) | $ 4,50,000 | $ 4,80,000 | $ 9,30,000 | ||
Contribution per unit (E) | $ 30 | $ 48 | |||
(Total Contribution / units sold) | |||||
Hours per unit (F) | 0.50 | 1.25 | |||
Contribution per hour (E/F) | $ 60 | $ 38 | |||
Market Demand (units) (G) | 15,000 | 10,000 | |||
Total Hours required (F x G) | $ 7,500 | $ 12,500 | $ 20,000 |
a ) Total available capacity is 18000 hours whereas total capacity required is 20000 hours to produce 15000 units of A and 10000 units of B. So there is not enough capacity.
b) Contribution margin per hour for Product A is $ 60 and that for product B is $ 38
c) As the contribution per hour for product A is greater than that for product B and number of hours available is the limiting factor, it is recommended to produce 15000 units of A and then product B with balance hours.
Hours required to produce 15000 units of A = 15000 x 0.50 = 7500 hours
Balance hours available = 18000 - 7500 = 10500 hours.
Number of units of B that could be produced with 10500 hours = 10500 / 1.25 = 8400 units
d)
Product A | Product B | Total | |||
Sales in units | 15000 | 8400 | |||
Selling Price per unit | 100 | 160 | |||
Sales Revenue (A) | $ 15,00,000 | $ 13,44,000 | $ 28,44,000 | ||
Variable Cost | |||||
Manufacturing cost | |||||
50% of $1500000 | $ 7,50,000 | $ 7,50,000 | |||
50% of $ 1600000 | $ 6,72,000 | $ 6,72,000 | |||
Sales commissions | |||||
20% of $1500000 | $ 3,00,000 | $ 3,00,000 | |||
20% of $ 1600000 | $ 2,68,800 | $ 2,68,800 | |||
Total Variable Cost (B) | $ 10,50,000 | $ 9,40,800 | $ 19,90,800 | ||
Contribution (A - B) - (C) | $ 4,50,000 | $ 4,03,200 | $ 8,53,200 | ||
Less: Traceable cost: | |||||
Advertisement | $ 1,00,000 | $ 1,20,000 | $ 2,20,000 | ||
Other Fixed costs | $ 1,40,000 | $ 1,40,000 | $ 2,80,000 | ||
Total Traceable fixed cost (D) | $ 2,40,000 | $ 2,60,000 | $ 5,00,000 | ||
Segment Margin (C - D) | $ 2,10,000 | $ 1,43,200 | $ 3,53,200 | ||
Less: Common Fixed Cost | $ 2,00,000 | ||||
(as allocated) | |||||
Operating Income for the Adm2341 Co. | $ 1,53,200 |
Adm2341 Co. manufactures and sells two products (A and B). Projected data for next year are:...
Adm2341 Co. manufactures and sells two products (A and B). Projected data for next year are: Product A Product B Sales in units 15,000 10,000 Sale price per unit $100 $160 Variable costs manufacturing 50% of sales 60% of sales Sales commissions 20% of sales 20 % of sales Advertising $100,000 $120,000 Other fixed costs (note 1) $240,000 $240,000 Note 1: Each amount of "Other fixed costs" includes $100,000 fixed general overhead allocated by the Headquarter of Adm2341 Co. to...
Adm2341 Co. manufactures and sells two products (A and B). Projected data for next year are: Product A Product B Sales in units 15,000 10,000 Sale price per unit $100 $160 Variable costs manufacturing 50% of sales 60% of sales Sales commissions 20% of sales 20 % of sales Advertising $100,000 $120,000 Other fixed costs (note 1) $240,000 $240,000 Note 1: Each amount of "Other fixed costs" includes $100,000 fixed general overhead allocated by the Headquarter of Adm2341 Co. to...
Adm2341 Co. manufactures and sells two products (A and B). Projected data for next year are: Product A Product B Sales in units 15,000 10,000 Sale price per unit $100 $160 Variable costs manufacturing 50% of sales 60 % of sales Sales commissions 20 % of sales 20 % of sales Advertising $100,000 $120,000 Other fixed costs (note 1) $240,000 $240,000 Note 1: Each amount of "Other fixed costs" includes $100,000 fixed general overhead allocated by the Headquarter of Adm2341...
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