Solution Manual for Accounting for Decision Making and Control 9th Edition Jerold Zimmerman

Solution Manual for Accounting for

Decision Making and Control 9th
Edition Jerold Zimmerman
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 The quoted passage ignores the opportunity cost of listeners’ having to forego
normal programming for on-air pledges. While such fundraising campaigns may have a
low out-of-pocket cost to NPR, if they were to consider the listeners’ opportunity cost, such
campaigns may be quite costly.

Chapter 2 © McGraw-Hill Education 2017

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P 2-4: Solution to Silky Smooth Lotions (15 minutes)
[Break even with multiple products]

Given that current production and sales are: 2,000, 4,000, and 1,000 cases of 4, 8,
and 12 ounce bottles, construct of lotion bundle to consist of 2 cases of 4 ounce bottles, 4
cases of 8 ounce bottles, and 1 case of 12 ounce bottles. The following table calculates
the break-even number of lotion bundles to break even and hence the number of cases of
each of the three products required to break even.

Per Case 4 ounce 8 ounce 12 ounce Bundle

Price $36.00 $66.00 $72.00
Variable cost $13.00 $24.50 $27.00
Contribution margin $23.00 $41.50 $45.00
Current production 2000 4000 1000

Cases per bundle 2 4 1

Contribution margin per bundle $46.00 $166.00 $45.00 $257.00

Fixed costs $771,000

Number of bundles to break even 3000

Number of cases to break even 6000 12000 3000

P 2-5: Solution to J. P. Max Department Stores (15 minutes)

[Opportunity cost of retail space]

Home Appliances Televisions

Profits after fixed cost allocations $64,000 $82,000
Allocated fixed costs 7,000 8,400
Profits before fixed cost allocations 71,000 90,400
Lease Payments 72,000 86,400
Forgone Profits – $1,000 $ 4,000

We would rent out the Home Appliance department, as lease rental receipts are
more than the profits in the Home Appliance Department. On the other hand, profits
generated by the Television Department are more than the lease rentals if leased out, so
we continue running the TV Department. However, neither is being charged inventory
holding costs, which could easily change the decision.
Also, one should examine externalities. What kind of merchandise is being sold
in the leased store and will this increase or decrease overall traffic and hence sales in the
other departments?

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Chapter 2 © McGraw-Hill Education 2017

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P 2-6: Solution to Vintage Cellars (15 minutes)
[Average versus marginal cost]

a. The following tabulates total, marginal and average cost.

Average Total Marginal

Quantity Cost Cost Cost

1 $12,000 $12,000
2 10,000 20,000 $8,000
3 8,600 25,800 5,800
4 7,700 30,800 5,000
5 7,100 35,500 4,700
6 7,100 42,600 7,100
7 7,350 51,450 8,850
8 7,850 62,800 11,350
9 8,600 77,400 14,600
10 9,600 96,000 18,600

b. Marginal cost intersects average cost at minimum average cost

(MC=AC=$7,100). Or, at between 5 and 6 units AC = MC = $7,100.

c. At four units, the opportunity cost of producing and selling one more unit is
$4,700. At four units, total cost is $30,800. At five units, total cost rises to
$35,500. The incremental cost (i.e., the opportunity cost) of producing the fifth
unit is $4,700.

d. Vintage Cellars maximizes profits ($) by producing and selling seven units.
Average Total Total
Quantity Cost Cost Revenue Profit

1 $12,000 $12,000 $9,000 -$3,000

2 10,000 20,000 18,000 -2,000
3 8,600 25,800 27,000 1,200
4 7,700 30,800 36,000 5,200
5 7,100 35,500 45,000 9,500
6 7,100 42,600 54,000 11,400
7 7,350 51,450 63,000 11,550
8 7,850 62,800 72,000 9,200
9 8,600 77,400 81,000 3,600
10 9,600 96,000 90,000 -6,000

P 2-7: Solution to ETB (15 minutes)

[Minimizing average cost does not maximize profits]

a. The following table calculates that the average cost of the iPad bamboo case is
minimized by producing 4,500 cases per month.

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