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Calculate the contribution margin and prepare an incremental analysis for the elimination of a product and acceptance of a special order. 17P7.60B (LO 6, 7) Furniture Shop Co. manufactures three types of computer desks. The income statement for the three products and the whole company is shown below: Product A Product B $50,000 $60,000 25,000 40,000 16,000 12,000 41,000 52,000 $ 9,000 $ 8,000 Product C Total $65,000 $175,000 60,000 125,000 8,000 36,000 68,000 161,000 $ (3,000) $ 14,000 Sales Variable costs Fixed costs Total costs Operating income (loss) The company produces 1,000 units of each product. The company's capacity is 9,000 labour hours. The labour for each product is four hours for Product A, three hours for Product B, and two hours for Product C. Fixed costs are allocated based on labour hours. Instructions a. If it maintains the current production levels, should the company eliminate Product C? Explain your reasoning. b. If the company can sell unlimited quantities of any of the three products, which product should it produce? c. Suppose the company can sell unlimited quantities of any of the three products. If a customer wanted to purchase 500 units of Product C, what would the minimum sale price per unit be for this order? c. $73.34 d. The company has a contract that requires it to supply 500 units of each product to a customer. The total market demand for a single product is limited to 1,500 units. How many units of each product should the company manufacture to maximize its total contribution margin? d. Produce 875 units of A

Calculate the contribution margin and prepare an incremental analysis for the elimination of a product and acceptance of a special order. 17P7.60B (LO 6, 7) Furniture Shop Co. manufactures three types of computer desks. The income statement for the three products and the whole company is shown below: Product A Product B $50,000 $60,000 25,000 40,000 16,000 12,000 41,000 52,000 $ 9,000 $ 8,000 Product C Total $65,000 $175,000 60,000 125,000 8,000 36,000 68,000 161,000 $ (3,000) $ 14,000 Sales Variable costs Fixed costs Total costs Operating income (loss) The company produces 1,000 units of each product. The company's capacity is 9,000 labour hours. The labour for each product is four hours for Product A, three hours for Product B, and two hours for Product C. Fixed costs are allocated based on labour hours. Instructions a. If it maintains the current production levels, should the company eliminate Product C? Explain your reasoning. b. If the company can sell unlimited quantities of any of the three products, which product should it produce? c. Suppose the company can sell unlimited quantities of any of the three products. If a customer wanted to purchase 500 units of Product C, what would the minimum sale price per unit be for this order? c. $73.34 d. The company has a contract that requires it to supply 500 units of each product to a customer. The total market demand for a single product is limited to 1,500 units. How many units of each product should the company manufacture to maximize its total contribution margin? d. Produce 875 units of A

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Calculate the contribution margin and prepare an incremental analysis for the elimination of a product and acceptance of a special order. 17P7.60B (LO 6, 7) Furniture Shop Co. manufactures three types of computer desks. The income statement for the three products and the whole company is shown below: Product A Product B $50,000 $60,000 25,000 40,000 16,000 12,000 41,000 52,000 $ 9,000 $ 8,000 Product C Total $65,000 $175,000 60,000 125,000 8,000 36,000 68,000 161,000 $ (3,000) $ 14,000 Sales Variable costs Fixed costs Total costs Operating income (loss) The company produces 1,000 units of each product. The company's capacity is 9,000 labour hours. The labour for each product is four hours for Product A, three hours for Product B, and two hours for Product C. Fixed costs are allocated based on labour hours. Instructions a. If it maintains the current production levels, should the company eliminate Product C? Explain your reasoning. b. If the company can sell unlimited quantities of any of the three products, which product should it produce? c. Suppose the company can sell unlimited quantities of any of the three products. If a customer wanted to purchase 500 units of Product C, what would the minimum sale price per unit be for this order? c. $73.34 d. The company has a contract that requires it to supply 500 units of each product to a customer. The total market demand for a single product is limited to 1,500 units. How many units of each product should the company manufacture to maximize its total contribution margin? d. Produce 875 units of A
Transcribed Image Text:Calculate the contribution margin and prepare an incremental analysis for the elimination of a product and acceptance of a special order. 17P7.60B (LO 6, 7) Furniture Shop Co. manufactures three types of computer desks. The income statement for the three products and the whole company is shown below: Product A Product B $50,000 $60,000 25,000 40,000 16,000 12,000 41,000 52,000 $ 9,000 $ 8,000 Product C Total $65,000 $175,000 60,000 125,000 8,000 36,000 68,000 161,000 $ (3,000) $ 14,000 Sales Variable costs Fixed costs Total costs Operating income (loss) The company produces 1,000 units of each product. The company's capacity is 9,000 labour hours. The labour for each product is four hours for Product A, three hours for Product B, and two hours for Product C. Fixed costs are allocated based on labour hours. Instructions a. If it maintains the current production levels, should the company eliminate Product C? Explain your reasoning. b. If the company can sell unlimited quantities of any of the three products, which product should it produce? c. Suppose the company can sell unlimited quantities of any of the three products. If a customer wanted to purchase 500 units of Product C, what would the minimum sale price per unit be for this order? c. $73.34 d. The company has a contract that requires it to supply 500 units of each product to a customer. The total market demand for a single product is limited to 1,500 units. How many units of each product should the company manufacture to maximize its total contribution margin? d. Produce 875 units of A
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