ACT 5140 Accounting for Decision Makers - Homework 6
Question 1
Consider the following per unit amounts based upon the monthy capacity of
Category
Variable Manufacturing Costs
Fixed Manufacturing Costs
Variable Selling Costs
Fixed Selling Costs $
$
$
$ 500,000 units $/Unit
Total
35.00
16.00 $8,000,000
20.00
16.00 $8,000,000 Capacity cannot be added in the short run and the firm currently sells the product for $ 100.00 per unit The company is currently producing
475,000 units per month.
A potential customer has contacted the firm and offered to purchase
50,000 units this month only
The customer is willing to pay
$
78.00 per unit
Since the potential customer approached the firm, there will be no variable selling costs incurred.
Should the company accept the special order? Why or why not? Be specific in your answer showing your work in a financial format.
How much money can the company expect to earn (lose) with the additional transaction? Show your work
Part 2 of this question: Which variables are relevant and explain why you find them to be relevant. Question 2
Consider the following per unit amounts based upon the monthy capacity of
Category
Variable Manufacturing Costs
Fixed Manufacturing Costs
Variable Selling Costs
Fixed Selling Costs $
$
$
$ 500,000 units $/Unit
Total
21.00
4.00 $2,000,000
5.00
3.00 $1,500,000 Capacity cannot be added in the short run and the firm currently sells the product for $ 43.00 per unit The company is currently producing
480,000 units per month.
A potential customer has contacted the firm and offered to purchase
50,000 units this month only
The customer is willing to pay
$
30.00 per unit
Additional selling costs by the company
will not be incurred because the buyer
will
pick up the order themselves
Should the company accept the special order? Why or why not? Be specific in your answer showing your work in a financial format.
How much money can the company expect to earn (lose) with the additional transaction? Show your work Question 3
A consulting company performs a "basic" market analysis for a client
The company incurrs cost of
$350,000 in performing the analysis and plans to sell the report to the client for
$500,000
After reviewing the intial report, the client asks the firm if it is willing to do a more extensive report
The client offers to pay the consulting company a much higher amount of,
$750,000 to include the additional work
If the more extensive report the consulting company estimates that incremental costs of
$200,000 would be required to do the additional work
Should the consulting company agree to do the more extensive report?
How much money can the company expect to earn (lose) with the additional transaction? Show your work Question 4
Assume an engineering company provides services for three types of clients.
Each service requires a different amount of a specific form of specialized labor that is in limited supply.
If the company is limited to
16,500
hours of the specialized labor, how many clients of each type
Questions
Should the engineering company accept in order to maximize operating income?
Also show your calculations for the following:
1. List the type of client that should be served first, second and third
2. Number of hours used for the special labor by each client type
3. Number of customers serviced by each client type
4. Contribution margin dollars to be expected by each client type and total
5. Contribution margin dollars to be expected in total Client Type
Revenue per client
Variable Cost per client
Specialized Labor hours required
per client
Maximum clients available Job
$3,000
$1,000 Wholesale
$3,500
$1,200 Retail
$5,300
$2,700 8
300 12
500 13
700

 

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