Question

10 points Save Answer QUESTION 1 The Dubs division of Fast Company (the parent company produces wheels for off-road sport vehicles. One half of Dub's output is sold to the Hoon division of Fast: the remainder is sold to outside customers. Dub's estimated operating profit for the year is shown in the table Internal Sales External Sales Totals Sales $300,000 $700,000 Var Mlg $400,000 $160,000 $60,000 $160,000 $320,000 Var G&A $40,000 $100,000 CM $180,000 Fixed Mfg $100,000 $24,000 $36.000 $32,000 $280,000 $56,000 $84,000 Fixed GEA $48.000 Op. Profits $40,000 1,000 $100,000 1,000 $140,000 2,000 Unit Sales Unless otherwise stated assume the fixed costs given above are allocated costs and unavoidable. Hoon division has an opportunity to purchase 1,000 wheels of the same quality from an outside supplier on a continuing basis for $250.00 per Wheel What would be the total contribution margin in the Dubs division if production were increased by 50% both for transfer to Hoon and for external sales? Assume there are no capacity constraints. Round to the nearest $0.01

Answer 1

Prodcution Enhanced by 50% Internal Sales ($) External Sales ($) 1500 1500 Unit Produced Sales Unit Sales Selling Price Internal Sales ($) External Sales ($) 3,00,000 4,00,000 1,000 1,000 300 400 Sales 4,50,000 (1500*300) 6,00,000 (1500*400) Var Mfg. Var Mfg. Unit Sales Variable Rate / Unit 1,60,000 1,000 160 1,60,000 1,000 160 2,40,000 (1500*160) 2,40,000 (1500*160) Var G&A 60,000 (1500*40) 90,000 (1500*60) Var G & A Unit Sales Variable Rate / Unit 40,000 1,000 40 60,000 1,000 60 Contribution Margin (Sales - Variable Cost) 1,50,000 2,70,000