PROBLEM 1

1. RELEVANT COSTS TO STUDY AND WORK

STUDY WORK
INTERNET FEE 1,500 2,500
FOOD 1,000 1,500
ELECTRICITY COSTS 250 1,200
MISCELLANEOUS 500 1,000
MONTHLY COSTS 3,250 6,200
OPPORTUNITY COSTS 14,000
MONTHLY RELEVANT COSTS 17,250 6,200
TIMES 6 6 6
TOTAL 103,500 37,200
PARTICIPATE 1,500
TOTAL RELEVANT COSTS 105,000 37,200

NET SAVINGS TO WORK 67,800

2. NET OPPORTUNITY -

PROBLEM 2

1. Monthly Income from Coffee Shop

CONTRIBUTION MARGIN 110,000 200,000 X (100%-45%)

FIXED COSTS 80,000
PROFIT 30,000

2. Net Annual Opportunity Costs

VENDING
COFFEE SHOP MACHINE
CONTRIBUTION MARGIN 110,000 52,000 200,000 X 1.30 X 20%
FIXED COSTS 80,000 32,000 80,000 X 40%
PROFIT 30,000 20,000
RENT INCOME 15,000
RELEVANT INCOME 30,000 35,000
TIMES 12 12 12
360,000 420,000

if Coffee Shop is Discontinued 360,000

if Coffee Shop is Continued 420,000

3. Increase in Profit 5,000

PROBLEM 3

REQUIRED 1

MAKE BUY ORIGINAL INFO

DIRECT MATERIAL 2.35 2.35
DIRECT LABOR 1.20 1.50
VARIABLE OH 1.00 1.25
SUPERVISION COST 0.40 100,000
DEPRECIATION 0.32 80,000
PURCHASE PRICE 5.00
UNIT COSTS 5.27 5.00
NUMBER OF UNITS 250,000 250,000
RELEVANT COSTS 1,317,500 1,250,000

NET SAVINGS TO BUY - 67,500

REQUIRED 2

MAKE BUY ORIGINAL INFO

DIRECT MATERIAL 2.35 2.35
DIRECT LABOR 1.20 1.50
VARIABLE OH 1.00 1.25
SUPERVISION COST 0.25 100,000
DEPRECIATION 0.20 80,000
PURCHASE PRICE 5.00
UNIT COSTS 5.00 5.00
NUMBER OF UNITS 400,000 400,000
RELEVANT COSTS 2,000,000 2,000,000

NET SAVINGS (INDIFFERENT) - YES

REQUIRED 3

MAKE BUY ORIGINAL INFO

DIRECT MATERIAL 2.35 2.35
DIRECT LABOR 1.05 1.50
VARIABLE OH 0.88 1.25
SUPERVISION COST 0.40 100,000
DEPRECIATION 0.32 80,000
PURCHASE PRICE 5.00 29.82%
UNIT COSTS 5.00 5.00
NUMBER OF UNITS 250,000 250,000
RELEVANT COSTS 1,250,000 1,250,000 1.93
2.75
NET SAVINGS TO MAKE -
REQUIRED 4

MAKE BUY ORIGINAL INFO

DIRECT MATERIAL 1.50 2.35
DIRECT LABOR 1.20 1.50
VARIABLE OH 1.00 1.25
SUPERVISION COST 0.40 100,000
DEPRECIATION 0.32 80,000
PURCHASE PRICE 5.00
UNIT COSTS 4.42 5.00
NUMBER OF UNITS 250,000 250,000
TOTAL 1,105,000 1,250,000
IDLE SPACE RENT 100,000
RELEVANT COSTS 1,205,000 1,250,000

NET SAVINGS TO MAKE - 45,000

REQUIRED 5

RELEVANT COSTS TO MAKE 1,205,000

NUMBER OF UNITS 250,000
MAXIMUM PRICE 4.82

PROBLEM 4

REQUIRED 1

Special Price (100 x 80%) 80.00

Variable costs:
DM 30.00 30.00
DL 16.00 16.00
VOH 6.00 6.00
VSE (8 x 40%) 3.20 3.20
Contribution margin 24.80
No. of units 10,000
Contribution margin 248,000
Cost of customization - 48,000 4.80
Increase in profit 200,000 60.00

REQUIRED 2

Agreed profit 24.50

Reimbursement - relevant production cost 52.00 VARIABLE MC
Special Price 76.50
Variable costs:
DM 30.00 30.00
DL 16.00 16.00
VOH 6.00 6.00
VSE (8 x 5%) 0.40 0.40
Contribution margin 24.10
No. of units 10,000
Increase in profit 241,000 52.40
REQUIRED 3

Agreed profit 24.50

Reimbursement - relevant production cost 52.00 VARIABLE MC
Special Price 76.50
Variable costs:
DM 30.00 30.00
DL 16.00 16.00
VOH 6.00 6.00
VSE (8 x 5%) 0.40 0.40
Contribution margin from special sale 24.10
No. of units 10,000
Contribution margin from special sale 241,000
Lost contribution margin
Regular CMU (100 - 60) 40
Sacrificed units 5,000 200,000 20.00

Increase in profit 41,000 72.40

REQUIRED 4

Agreed profit 24.50

Reimbursement - relevant production cost 52.00 VARIABLE MC
Special Price 76.50
UNITS 10,000
SPECIAL SALES 765,000
Variable costs:
DM 30.00
DL 16.00
VOH 6.00
TOTAL INSOURCE 52.00
UNITS 5,000 260,000 26.00

Outsourcing costs:
Variable fee per unit 20
Fixed fee per unit 30
TOTAL OUTSOURCE 50
UNITS 5,000 250,000 25.00

VSE (8 x 5%) 0.40

Total Units 10,000 4,000 0.40

Increase in profit 251,000 51.40

REQUIRED 5

MINIMUM SELLING PRICE - 1 60.00

MINIMUM SELLING PRICE - 2 52.40

MINIMUM SELLING PRICE - 3 72.40

MINIMUM SELLING PRICE - 4 51.40

PROBLEM 5

W X Y
SV AFTER FP 40 50 100
SV AT SOP 24 20 75
INC. IN SV 16 30 25
INC. COST 20 24 30
INC. PROFIT -4 6 -5

REQ 1 AND 2 SOP PF SOP

W X Y Z Z
APPLICABLE SV 24 50 75 16
COST OF FP - 24 -
CMU 24 26 75 16
UNITS 4,000 6,000 5,000 10,000
CM 96,000 156,000 375,000 160,000 787,000
JOINT COSTS 125,000
NET PROFIT 662,000

PROBLEM 7

REQUIREMENT 1
Shutdown costs (unavoided cost of discontinuance)

Original % Retained Monthly 3 months

Fixed manufacturing costs 140,000 25% 35,000 105,000
Fixed selling and admin costs 60,000 65% 39,000 117,000
Start up costs 75,000
SHUTDOWN COSTS 297,000

Cost of continuance

Contribution Margin (57.50 - 40) x 10,000 x 3 525,000

Fixed costs (2,400,000 x 3/12) - 600,000
Health and safety (50,000 x 3) - 150,000
LOSS ON CONTINUANCE - 225,000

NET DISADVANTAGE OF CLOSING THE PLANT 72,000

REQUIREMENT 2

SHUTDOWN POINT = (FIXED COSTS OF CONTINUANCE) - SHUTDOWN COSTS

CONTRIBUTION MARGIN PER UNIT

SHUTDOWN POINT = (600,000 + 150,000) - 297,000

57.50 - 40

SHUTDOWN POINT = 25,886