Calculation of contribution margin per Dak |
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Selling price |
58 |
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Less: variable costs |
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Direct Material |
8.5 |
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Direct Labor |
12 |
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Variable Overhead |
2.90 |
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Variable Selling Expenses |
1.70 |
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Total Variable cost |
25.1 |
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Contribution Margin per Unit |
32.9 |
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1-a Financial Advantage = Additional contribution Margin - Increased expenses |
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=27,000*32.9– 130,000 = $758,300 |
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1-B yes, since benefit |
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2.Calculation of break even price |
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Direct Material |
8.5 |
|
Direct Labor |
12 |
|
Variable Overhead |
2.9 |
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Import Duties |
1.70 |
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Selling expenses |
1.50 |
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Total variable cost |
26.6 |
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Break even price = 26.6 + 18900/27,000 = $27.3 |
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3.Relevant cost is the variable selling expense since manufacturing cost has already been incurred i.e. $1.70 per unit |
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Operating level = 90,000*25%*2/12 = 3750 units |
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4-a. Contribution margin foregone = 3750*32.9 = $123,375 |
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4-b Fixed cost avoided = 810,000*65%*2/12 + 315,000*20%*2/12 = $98,250 |
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c.Advantage of closing = 98,250-123,375 = $(25,125) i.e. disadvantage |
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d.No, should not be closed |
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