Problem 1: Donald Company provided the following information regarding its one and only product-skateboards.
Direct materials used $350,000
Direct labor 170,000
Fixed overhead 95,000
Variable overhead 20,000
Variable selling & administrative 55,000
Units produced and sold 40,000
The manufacturing cost per unit, if the contribution approach is used, is:
- $13.00
- $13.50
- $14.75
- $15.50
Problem 2: Miller Company produces a part that is used in the manufacture of one of its products. The costs associated with the production of 5,000 units of this part are as follows:
Direct materials $108,000
Direct labor 156,000
variable factory overhead 72,000
Fixed factory overhead 168,000
Total costs $504,000
Of the fixed factory overhead costs, $72,000 is avoidable. Assume that Miller Company can buy 5,000 units of the part from another producer for $100.80 each. The current facilities could be used to make 5,000 units of a product that has a contribution margin of $24 per unit. Fixed factory overhead costs to produce this new product would be exactly the same as for the currently produced part. Miller Company should:
- continue to make the part and earn an extra $48,000 in profit
- buy the part and produce the new product and earn an extra $4.80 per unit contribution to profit
- continue to make the part and earn an extra $4.80 per unit contribution to profit
- buy the part and produce the new product and earn an extra $24 per unit contribution to profit
Problem 3: Hoover Company manufactures a part for its production cycle. The costs per unit for 10,000 units of this part are as follows:
Direct materials $20
Direct labor 15
variable factory overhead 16
Fixed factory overhead 10
Total costs $61
The fixed factory overhead costs are unavoidable. Madison Company has offered to sell 10,000 units of the same part to Hoover Company for $55 a unit. Assuming no other use for the facilities, Hoover Company should:
- make the part to save $4 per unit
- buy from Madison to save $6 per unit
- make the part to save $6 per unit
- buy from Madison to save $4 per unit
Problem 4: Grape Company produces three products using a joint process which accumulates $25,000 in joint costs. The products, A, B, and C, can be sold at split-off or processed further and then sold. The production level for each product is 10,000 units. The following unit information is also available:
sales value Separable processing Sales value
Product at split off costs after split off at completion
A $12 $9 $21
B 10 4 17
C 15 6 19
Product C should be processed beyond the split-off point because:
- incremental revenues will exceed incremental costs
- incremental costs exceed incremental revenue
- sales value at completion exceeds sales value at split-off
- None of these answers is correct.
Question 5: Lemon Manufacturing Company produces three products using a joint process that accumulates $25,000 in joint costs. The products, A, B, and C, can be sold at split-off or processed further and then sold. The production level for each product is 10,000 units. The following unit information is also available:
sales value Separable processing Sales value
Product at split off costs after split off at completion
A $12 $9 $21
B 10 4 17
C 15 6 19
Product B:
- should be processed further to increase profits by $70,000
- should be sold at split-off to maximize profits
- should be processed further to increase profits by $3 per unit
- can be processed further or sold at split-off; it makes no difference.