Week 5 - Chapter 3 Costing Orders and Short-term Product Mix Decisions

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Author:
honestkyle
ID:
287910
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Week 5 - Chapter 3 Costing Orders and Short-term Product Mix Decisions
Updated:
2014-11-02 21:03:59
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ACC6902
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ACC6902
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Chapter 3 Costing Orders and Short-term Product Mix Decisions
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  1. In question 3-65, how do you calculate the contribution margin per unit?
    For each product, start with the sales price per unit and subtract the following - direct materialsdirect labor, and variable overhead.
  2. In question 3-65, how do you calculate contribution margin per machine hours?
    • Contribution margin / machine hours per unit
    • $2.00 / 0.2 = $10.00
  3. In question 3-65, how do you calculate the optimal units per product once you have the contribution margin per machine hour?
    • Starting with the products with the highest contribution margin per machine hour, multiply the Total Unit Demand for Next Year by the Machine Hours per Unit.
    • 200,000 x 0.20 =40,000 units
    • Use the remaining machine hours to calculate the units for remaining products by dividing remaining Machine Hours by Machine Hours per Unit for the remaining products.
    • 10,000 ÷ 0.25 = 40,000 units
  4. In question 3-65, when deciding if the overtime is worthwhile to product max units of the third product, what is important to make the decision?
    The new Contribution Margin per Machine Hour when calculated using a cost of Direct Labor must be positive.
  5. In question 3-46, how are the Variable Manufacturing and Selling Costs calculated for any other combination of units to sell?
    • 1. Calculate the Variable Manufacturing and Selling Costs per unit of original units (ie. $198,000 ÷ 36,000 units = $5.50)
    • 2. Sum the number of new units.
    • 3. Multiple the Variable Manufacturing and Selling Costs per Unit by the new number of units.
  6. In question 3-46, how is the Operating Income calculated?
    • 1. Subtract Variable Manufacturing and Selling Costs from Sales to get Contribution Margin. (ie. $360,000 - $198,000 = $162,000)
    • 2. Subtract Fixed Costs from Contribution Margin to get Operating Income. (ie. $162,000 - $92,000 = $63,000)

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