Solution:

Particulars Per unit Total

Increase in Sales Revenue (33,000 boxes) $3.10 102,300
Variable costs:
Direct material $1.90 62,700
Direct labor $0.33 10,890
Variable overhead $0.06 1,980 75,570

Contribution margin 26,730

Less: Additional Fixed Cost ($15,700)

Increase in Operating income $11,030

 Accepting the special order is more cost effective and the operating income will increase
by $11,030

Particulars Per unit Total

 Sales Price (33,000) $5.20 171,600
Variable costs:
Direct material $1.90 62,700
Direct labor $0.33 10,890
Variable overhead $0.06 1,980

Contribution margin $96,030

 11,030 – 96,030 = (85,000) loss

 Rejecting the special order is better option, hence regular sales is the better alternative

Solution:
 Particulars Per unit Total
Sales Price (18,000) $1.38 $24,840
Variable costs:
Direct material $0.78 $14,040
Direct labor $0.34 6,120
Variable overhead $0.13 2,340

Contribution margin $2,340

4. $18,540 - $2,340 = $16,200

Solution:
1. Compute the relevant cost to make the product
Formula:
Direct materials + Direct labor + Variable overheads + Avoidable fixed cost per unit

= $45.05 + 10.30 + 3.20 + ($12,920/58,200)

= 45.05 + 10.30 + 3.20 + 0.222
= $58.772

 Relevant cost to make the product is more than to buy, so we should buy the product.

(58.772 – 58.42) x 58,200

= 0.352 x 58,200
= $20,486
Solution:
1.
Sales (72,500 + 78,500 + 37,500 + 8,600) $196,600
Less: COGS (83,000 + 33,400 + 23,000) (139,400)
Gross Profit $57,200
 2.
Sell at Split-Off Process Further Differential Amount
to Process Further
Revenues (51,400 + 2,150) $8,600 $53,550 $44,950
Further processing cost (25,600 + 12,000 + 3,050) - 40,650 40,650
Gross Profit $8,600 $12,900 $4,300

Solution:
No. of rental houses x 2 weeks x No. of months

27 rental houses x 2 weeks x 5 months = 270 lawns

Particular Amount
Revenue (270 x $27) $7,290
Less: Payment of one-man team (270 x 1 x $5) (1,350)
Less: Purchase of additional power lawn mower (370)
Less: Fuel cost (270 x $0.40) (108)
Increase in Income $5,462