- Turnover
Sales / Average Operating Assets
- Residual Income
Net Operating Income - (Average Operating Assets x Minimum Required Rate of Return)
Residual Income = NOI - (AOA x %)
- Product A has a contribution margin of $16.00 per unit, a contribution margin ratio of 45%, and requires 5.00 machine-hours to produce. Product B has a contribution margin of $18.00 per unit, a contribution margin ratio of 50%, and requires 5.00 machine-hours to produce. If the constraint is machine-hours, then the company should emphasize...
Product B
A B
Contribution margin per unit (a) $16.00 $18.00
Machine-hours to produce (b) 5.00 5.00
CM per machine-hour (a) ÷ (b) $3.20 $3.60
Product B should be emphasized since it has a higher CM per machine hour.
- Marion Company sells its product for $146 per unit. The company's unit product cost based on the full capacity of 300,000 units is as follows.
Direct materials $26.00
Direct labor 33.00
Manufacturing overhead 45.00
Unit product cost $104.00
A special order offering to buy 130,000 units has been received from a foreign distributor. The only selling costs that would be incurred on this order would be $23.00 per unit for shipping. The company has sufficient idle capacity to manufacture the additional units. Two-thirds of the manufacturing overhead is fixed and would not be affected by this order. In negotiating a price for the special order, the minimum acceptable selling price per unit should be...
$97.00
Direct materials $26.00
Direct labor 33.00
Variable manufacturing overhead ($45.00 × 1/3) 15.00
Variable selling costs (shipping) 23.00
Minimum selling price $97.00
- Consider the following production and cost data for the two versions of the product that is manufactured and sold by Bellows Corporation:
Basic Deluxe
CM per unit $427.80 $458.80
Set-ups per unit 23 31
Only 188,945 machine set-ups can be performed each year due to limited supply of skilled labor. There is unlimited demand for each product. The largest possible total contribution margin that can be realized each year is...
$3,514,377
Basic version:
CM per setup = $427.80 ÷ 23 = $18.60 per setup
Deluxe version:
CM per setup = $458.80 ÷ 31 = $14.80 per setup
Basic is the constraint.
Maximum number of setups 188,945
# of setups per unit - basic ÷ 23
# of units that can be produced 8,215
CM per unit - basic × $427.80
Largest possible total CM $3,514,377
- When a manager increases the capacity of the bottleneck, it is called ______ the constraint.
relaxing
- Information concerning three of Edgecomb Pottery's products follows.
Plates Bowls Platters
Selling price / unit $46 $134 $170
Variable cost / unit 14.0 41 40
Hrs required / unit 1 3 4
More time could be made available by asking employees in the studio to work overtime. Assuming that this extra time would be used to produce bowls, the amount that the company should be willing to pay per hour to keep the studio open after normal working hours is...
$31.00
Bowls
Selling price / unit $134
Variable cost / unit 41
CM / unit (a) $93
Hrs required / unit (b) ÷ 3
CM / unit (a) ÷ (b) $31 per hour
- Sentinel Inc. manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $68,000 per year. The company allocates these costs to the joint products on the basis of their total sales value at the split-off point. These sales values are as follows: Product X, $34,000; Product Y, $61,200; and Product Z, $40,800. Each product may be sold at the split-off point or processed further. The additional processing costs and the sales value after further processing for each product (on an annual basis) are as follows.
Product X Product Y Product Z
Additional $13,600 $39,200 $9,600 processing
costs
Sales value 54,400 94,800 55,000
The product or products that should be sold at the split-off point is (are)...
Product Y
Product X Product Y Product Z
Sales value $54,400 $94,800 $55,000
Sales value at 34,000 61,200 40,800
split-off point
Incremental revenue 20,400 33,600 14,200
Additional processing 13,600 39,200 9,600
costs
Incremental profit (loss) $6,800 $(5,600) $4,600
- Products A and B are joint products. Product A can be sold for $1,750 at the split-off point, or processed further at a cost of $1,095 and then sold for $2,690. Product B can be sold for $4,100 at the split-off point, or processed further at a cost of $1,130 and then sold for $5,540. The company should process further...
Product B
Product A Product B
Sales value $2,690 $5,540
Sales value at 1,750 4,100
split-off point
Incremental revenue 940 1,440
Additional processing costs 1,095 1,130
(Dis)advantage of $(155) $310
further processing
