Fundamental Accounting Principles
24th Edition
ISBN: 9781259916960
Author: Wild, John J., Shaw, Ken W.
Publisher: Mcgraw-hill Education,
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Chapter 25, Problem 5BPSB
To determine
Concept Introduction:
Contribution margin
Contribution margin is the difference between sales price of a product and variable cost that results in the incremental profit earned for each unit sold. It means the contribution margin generated to meet the fixed cost and generate profit.
Requirement 1:
We have to determine the contribution margin per machine hour that product generates.
Expert Solution
Answer to Problem 5BPSB
| Product R | Product T | |
| Contribution margin per machine hour | $100 | $35 |
Explanation of Solution
| Product R | Product T | |
| Contribution margin per unit | $40 | $35 |
| Machine hour per unit | 0.4 hour | 1 hour |
| Contribution margin per machine hour | $100 | $35 |
| Maximum number of units to be sold | 550 | 175 |
| Hours required to produce maximum units | 220 | 75 |
To determine
Concept Introduction:
Contribution margin
Contribution margin is the difference between sales price of a product and variable cost that results in the incremental profit earned for each unit sold. It means the contribution margin generated to meet the fixed cost and generate profit.
Requirement 2:
We have to determine the product mix if it operates in only one shift and contribution margin of such product mix.
Expert Solution
Answer to Problem 5BPSB
| Product R | Total | |
| Total contribution margin - one shift | $44,000 | $44,000 |
Explanation of Solution
| Product R | Product T | |
| Hours dedicated to production of each product | 176 | Nil as machine hour is limited and we will produce product g as contribution is higher of product R. |
| Units produced for most profitable sales mix(176/0.4) | 440 | |
| Contribution margin per unit | $100 | |
| Total contribution margin - one shift | $44000 | |
To determine
Concept Introduction:
Contribution margin
Contribution margin is the difference between sales price of a product and variable cost that results in the incremental profit earned for each unit sold. It means the contribution margin generated to meet the fixed cost and generate profit.
Requirement 3:
We have to determine the product mix if it operates in two shifts and contribution margin of such product mix.
Expert Solution
Answer to Problem 5BPSB
| Product R | Product T | Total | |
| Total contribution margin - another shift | $55000 | $4620 | $59,620 |
Explanation of Solution
| Product R | Product T | Total | |
| Maximum number of units to be sold | 550 | 175 | 725 |
| Hours required to produce maximum units | 220 | 175 | 395 |
| Hours dedicated to production of each product | 220 | 132 | 352 hours |
| Units produced for most profitable sales mix | 550 | 132 | 712 |
| Contribution margin per unit | $100 | $35 | |
| Total contribution margin - two shift | $55000 | $4620 | $59,620 |
| Total contribution margin - one shift | $44,000 | ||
| Change in contribution margin | $15620 | ||
| Change in fixed cost | $3250 | ||
| Change in operating income | $12370 |
Since, it results in increase in operating income. Therefore the company should add another shift.
To determine
Concept Introduction:
Contribution margin
Contribution margin is the difference between sales price of a product and variable cost that results in the incremental profit earned for each unit sold. It means the contribution margin generated to meet the fixed cost and generate profit.
Requirement 4:
We have to determine whether it is profitable to increase the maximum production of product R to 675 units.
Expert Solution
Answer to Problem 5BPSB
| Product G | Product B | Total | |
| Total contribution margin - two shift with marketing campaign | $67500 | $2870 | $70370 |
Explanation of Solution
| Product G | Product B | Total | |
| Hours dedicated to production of each product | 270 | 82 | 352 |
| Units produced for most profitable sales mix | 675 | 82 | |
| Contribution margin per unit | $100 | $35 | |
| Total contribution margin - two shift with marketing campaign | $67500 | $2870 | $70370 |
| Total contribution margin - two shift without marketing campaign | $55000 | $4620 | $59,620 |
| Change in contribution margin | $10750 | ||
| Additional marketing cost | $4500 | ||
| Change in fixed cost | $3250 | ||
| Change in operating revenue | $3000 |
Since, the change in operating revenue results in profit. Therefore the company should pursue the marketing campaign and increase the production of Product G.
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Chapter 25 Solutions
Fundamental Accounting Principles
Ch. 25 - Prob. 1DQCh. 25 - Prob. 2DQCh. 25 - 3. What is a relevant cost? Identify the two types...Ch. 25 - Prob. 4DQCh. 25 - Prob. 5DQCh. 25 - 6. Google has many types of costs. What is an...Ch. 25 - Prob. 7DQCh. 25 - Prob. 8DQCh. 25 - Prob. 9DQCh. 25 - Prob. 10DQ
Ch. 25 - Prob. 11DQCh. 25 - Prob. 12DQCh. 25 - Prob. 1QSCh. 25 - QS 25-2 Special offer P7
Refer to the data in QS...Ch. 25 - QS 25-3 Identifying relevant costs C1
Zycon...Ch. 25 - Prob. 4QSCh. 25 - Prob. 5QSCh. 25 - Prob. 6QSCh. 25 - Prob. 7QSCh. 25 - Prob. 8QSCh. 25 - Prob. 9QSCh. 25 - Prob. 10QSCh. 25 - Prob. 11QSCh. 25 - Prob. 12QSCh. 25 - Prob. 13QSCh. 25 - Prob. 14QSCh. 25 - Prob. 15QSCh. 25 - Prob. 16QSCh. 25 - Prob. 17QSCh. 25 - Prob. 18QSCh. 25 - Prob. 19QSCh. 25 - Prob. 20QSCh. 25 - Prob. 21QSCh. 25 - Prob. 1ECh. 25 - Prob. 2ECh. 25 - Prob. 3ECh. 25 - Prob. 4ECh. 25 - Prob. 5ECh. 25 - Exercise 25-6 Sales mix determination and analysis...Ch. 25 - Prob. 7ECh. 25 - Prob. 8ECh. 25 - Prob. 9ECh. 25 - Prob. 10ECh. 25 - Prob. 11ECh. 25 - Prob. 12ECh. 25 - Prob. 13ECh. 25 - Prob. 14ECh. 25 - Prob. 15ECh. 25 - Prob. 1APSACh. 25 - Prob. 2APSACh. 25 - Prob. 3APSACh. 25 - Prob. 4APSACh. 25 - Prob. 5APSACh. 25 - Prob. 6APSACh. 25 - Prob. 1BPSBCh. 25 - Prob. 2BPSBCh. 25 - Prob. 3BPSBCh. 25 - Prob. 4BPSBCh. 25 - Prob. 5BPSBCh. 25 - Prob. 6BPSBCh. 25 - Santana Rev has found that Business Solution’s...Ch. 25 - Prob. 1AACh. 25 - Prob. 2AACh. 25 - Prob. 3AACh. 25 - Bert Asiago, a salesperson for Convertco, received...Ch. 25 - Prob. 2BTNCh. 25 - Prob. 3BTNCh. 25 - Prob. 4BTNCh. 25 - Prob. 5BTNCh. 25 - Prob. 6BTN
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