Dakota Security Systems (DSS) is a decentralized organization that evaluates divisional management based on measures of divisional contribution margin. Residential Division and Commercial Division both sell security and monitoring equipment. Residential sells primarily to home owners and apartment management companies. Commercial focuses on small to medium-sized businesses. Residential sells a particular alarm to the outside market for $237 per unit. The outside market can absorb up to 46,200 units per year. These units require 3 direct labor-hours each. If Residential modifies the units with an additional 0.75 hour of labor time, it can sell them to Commercial for $264 per unit. Commercial will accept up to 39,600 of these units per year. If Commercial does not obtain 39,600 units from Residential, it purchases them for $273 each from the outside. Commercial incurs $129 of additional labor and other out-of-pocket costs to convert the alarm (either from Residential or outside) into one that fits in an existing Commercial Division system. The units can be sold to the outside market for $633 each. Residential estimates that its total costs are $1,492,000 for fixed costs, $34.00 per direct labor-hour, and $21.60 per alarm for materials and other variable costs besides direct labor. Its capacity is limited to 208,500 direct labor-hours per year. Required: Determine the following: a. Total contribution margin to Residential if it sells 46,200 units outside. b. Total contribution margin to Residential if it sells 39,600 units to Commercial. c. and d. The costs to be considered in determining the optimal company policy for sales by Residential.
Dakota Security Systems (DSS) is a decentralized organization that evaluates divisional management based on measures of divisional contribution margin. Residential Division and Commercial Division both sell security and monitoring equipment. Residential sells primarily to home owners and apartment management companies. Commercial focuses on small to medium-sized businesses. Residential sells a particular alarm to the outside market for $237 per unit. The outside market can absorb up to 46,200 units per year. These units require 3 direct labor-hours each. If Residential modifies the units with an additional 0.75 hour of labor time, it can sell them to Commercial for $264 per unit. Commercial will accept up to 39,600 of these units per year. If Commercial does not obtain 39,600 units from Residential, it purchases them for $273 each from the outside. Commercial incurs $129 of additional labor and other out-of-pocket costs to convert the alarm (either from Residential or outside) into one that fits in an existing Commercial Division system. The units can be sold to the outside market for $633 each. Residential estimates that its total costs are $1,492,000 for fixed costs, $34.00 per direct labor-hour, and $21.60 per alarm for materials and other variable costs besides direct labor. Its capacity is limited to 208,500 direct labor-hours per year. Required: Determine the following: a. Total contribution margin to Residential if it sells 46,200 units outside. b. Total contribution margin to Residential if it sells 39,600 units to Commercial. c. and d. The costs to be considered in determining the optimal company policy for sales by Residential.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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A1
Transcribed Image Text:Required:
Determine the following:
a. Total contribution margin to Residential if it sells 46,200 units outside.
b. Total contribution margin to Residential if it sells 39,600 units to Commercial.
c. and d. The costs to be considered in determining the optimal company policy for sales by Residential.
The annual contributions and costs for Residential and Commercial under the optimal policy.
Complete this question by entering your answers in the tabs below.
Req A
X Answer is complete but not entirely correct.
Req B
Req C and D
Determine the total contribution margin to Residential if it sells 46,200 units outside.
Total contribution margin
$5,243,280 x
Transcribed Image Text:Dakota Security Systems (DSS) is a decentralized organization that evaluates divisional management based on measures of divisional
contribution margin. Residential Division and Commercial Division both sell security and monitoring equipment. Residential sells
primarily to home owners and apartment management companies. Commercial focuses on small to medium-sized businesses.
Residential sells a particular alarm to the outside market for $237 per unit. The outside market can absorb up to 46,200 units per year.
These units require 3 direct labor-hours each.
If Residential modifies the units with an additional 0.75 hour of labor time, it can sell them to Commercial for $264 per unit. Commercial
will accept up to 39,600 of these units per year.
If Commercial does not obtain 39,600 units from Residential, it purchases them for $273 each from the outside. Commercial incurs
$129 of additional labor and other out-of-pocket costs to convert the alarm (either from Residential or outside) into one that fits in an
existing Commercial Division system. The units can be sold to the outside market for $633 each.
Residential estimates that its total costs are $1,492,000 for fixed costs, $34.00 per direct labor-hour, and $21.60 per alarm for materials
and other variable costs besides direct labor. Its capacity is limited to 208,500 direct labor-hours per year.
Required:
Determine the following:
a. Total contribution margin to Residential if it sells 46,200 units outside.
b. Total contribution margin to Residential if it sells 39,600 units to Commercial.
c. and d. The costs to be considered in determining the optimal company policy for sales by Residential.
The annual contributions and costs for Residential and Commercial under the optimal policy.
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