Question

Abbott Suit Corporation (ASC) manufactures BOTH nylon AND cotton jogging suits. On 1/1/18, Erin Rogers ESTIMATES the following costs:

Rent on corporate headquarters                                                 $20,000

Salaries for CEO, cost accountant, administrative staff                $10,000

Depreciation for cost accountant’s printer                                  $10,000

Abbott Suit Corporation use MACHINE HOURS TO ALLOCATE OVERHEAD (i.e. its VPDOH = $10/mh).

Erin Rogers, UW-M graduate, creates the following standards for the two jogging suits:

	Nylon Jogging Suits		Cotton Jogging Suits
	Std.qty/suit	Std.price/input	Std.qty/suit	Std.price/input
Direct Materials	2 yds/suit	$10/yd	3 yds/suit	$20/yd
Direct Labor	5 dlh/suit	$8/dlh	4 dlh/suit	$5/dlh
VOH	2 mh/suit	$10/mh	4 mh/suit	$10/mh

Abbott Suit Believes that it can sell Nylon Jogging Suits for $180/suit and Cotton Jogging suits for $280/suit. Abbott Suit has a goal operating income of $60,000 and believe that it will sell 4 times as many Cotton jogging suits as nylon suits.

1. Compute how many NYLON and COTTON jogging suits must be sold in order to achieve the goal operating income of $60,000.

Answer 1

Calcualtion of weighted average contribution margin
	Nylon	Cotton	Total
Selling price	180	280
Less: variable costs
Direct Material	20	60
Direct Labor	40	20
Variable Overhead	20	40
Total variable cost	80	120
Contribution Margin per Unit	100	160
Sales Mix	1	4	5
Contribution Margin	100	640	740
Weighted average CM			148
Units required to be sold = (Desired Operating Income + Fixed costs)/Weighted average Contribution Margin
=(60,000+40,000)/148
675.6756757	Units
Nylon	135.14	Units
Cotton	540.54	Units