1

Item Case A Case B

a. Sales revenue Relevant Irrelevant
b. Direct materials Relevant Relevant
c. Direct labor Relevant Irrelevant
d. Variable manufacturing overhead Relevant Irrelevant
e. Depreciation—Model B100 machine Irrelevant Irrelevant
f. Book value—Model B100 machine Irrelevant Irrelevant
g. Disposal value—Model B100 machine Irrelevant Relevant
h. Market value—Model B300 machine (cost) Relevant Relevant
i. Fixed manufacturing overhead (general) Irrelevant Irrelevant
j. Variable selling expense Relevant Irrelevant
k. Fixed selling expense Relevant Irrelevant
l. General administrative overhead Relevant Irrelevant
1

3
 Particulars Current Total Total if Racing Bikes are Dropped
Sales 300,000 240,000
Less: Variable Expenses 120,000 87,000
Contribution Margin (loss) 180,000 153,000
Fixed Expenses:
Advertising, traceable 30,000 24,000
Depreciation of special equipment 23,000 23,000
Salaries of product-line managers 35,000 25,000
Allocated common fixed expenses 60,000 60,000
Total Fixed expenses 148,000 132,000
Net Operating Income (loss) 32,000 21,000

No, the production should not be stopped.

Totals Dirt Bikes

Sales 300,000 90,000
Variable manufacturing and selling expenses 120,000 27,000
Contribution margin (loss) 180,000 63,000
Traceable fixed expenses:
Advertising, traceable 30,000 10,000
Depreciation of special equipment 23,000 6,000
Salaries of the product line managers 35,000 12,000
Total traceable fixed expenses 88,000 28,000
Product line segment margin (loss) 92,000 35,000
Common fixed expenses 60,000
Net operating income (loss) 32,000
 Difference: Net Operating Income increase or decrease
-60,000
33,000
-27,000

6,000
0
10,000
0
16,000
-11,000

Mountain Bikes Racing Bikes

150,000 60,000
60,000 33,000
90,000 27,000

14,000 6,000
9,000 8,000
13,000 10,000
36,000 24,000
54,000 3,000
1
Make Buy
Direct material 210,000
Direct labor 150,000
Variable manufacturing overhead 45,000
Fixed manufacturing overhead 30,000
Purchase cost 525,000
Total relevant cost 435,000 525,000
Financial (disadvantage) -90,000

2
No, the outside supplier's offer should be rejected.

3
Direct material 210,000
Direct labor 150,000
Variable manufacturing overhead 45,000
Fixed manufacturing overhead 30,000
Oppurtunity cost 150,000
Purchase cost 525,000
Total relevant cost 585,000 525,000
Financial (advantage) 60,000

4
Yes, the outside supplier's offer should be accepted.
1
Particulars Per unit Total for 20 Bracelets
Incremental Revenue 169.95
Less: Incremental Costs
Variable Costs:
Direct Materials 86 1,720
Direct Labor 45 900
Variable Manufacturing overhead 4 80
Total Variable Costs 135 2,700
Fixed Costs:
Purchase of special tool 250
Total Incremental Cost
Financial Advantage

2
Yes, the company should accept the order.
20 Bracelets
3399

2,950
449
1
Particulars Ski Guard
Selling Price per Unit 200
Less: Variable Cost per Unit 60
Contribution Margin per Unit 140
Plastic Injection Molding Machine Processing Time Required to produce 2
Contribution Margin per Unit of Constrained Resource (per mins) 70

2
Ski Guard offers the most profitable use of plastic injection molding machine.

3
Selling Price per Unit 200
Less: Variable Cost per Unit 60
Contribution Margin per Unit 140
Pounds of plastic pellets required to peoduce one unit (in Ibs) 7
Contribution Margin per Unit of Constrained Resource (per Ibs) 20

4
Golf Guard offers the most profitable use of plastic pellets.

5
Fishing Guard has the largest Contribution Margin per Unit.
Golf Guard Fishing Guard
300 255
140 55
160 200
5 4
32 50

300 255
140 55
160 200
4 8
40 25
1
Product A Product B
Selling price after further processing 20 13
Selling price at split off point 16 8
Incremental selling price 4 5
Quantity 15,000 20,000
Incremental sale value 60,000 100,000
Incremental Cost -63,000 -80,000
Incremental profit (loss) -3,000 20,000

2
Product A Product B
Sell at split-off point? Yes No
Process further? No Yes
 Product C
32
25
7
4,000
28,000
-36,000
-8,000

Product C
Yes
No
1

4
 A B C
Selling price 180 270 240
Variable expenses:
Direct materials 24 80 32
Other variable expenses 102 90 148
Total variable expenses 126 170 180
Contribution margin C 54 100 60
No. of pounds of material used P 3 10 4
Contribution margin per pound C/ 18 10 15

Maximum contribution margin that can be earned is by selling pro 108,000

Maximum contribution margin

Product A 27,000
Product B 30,000
Product C 25,000
Total 82,000

Product A and Product B demand is completely utilised by own stock for Product C more
1
Direct Material 5.1
Add: Direct Labor 3.8
Add: Variable Manufacturing Overhead 1
Add: Variable Selling and Admin Expense 1.5
Total Costs 11.4
Selling Price per Unit 14
Contribution per Unit 2.6
Financial Advantage 39,000

2
It should be sold cheaper beacuse the stock is inferior to the c
1
Make Buy Increase/Decrease in Profit
Direct Materials 124,000 -124,000
Direct Labor 108,000 -108,000
Variable Manufacturing Over 24,000 -24,000
Salary 60,000 -60,000
Purchase Price 336,000 336,000
Total 316,000 336,000 20,000
Financial advantage 20,000
1
Lost in Contribution Margin -12,950
Less: Avoidable Costs
Flight promotion 750
Fuel for aircraft 5,800
Liability insurance 1,400
Salaries, Flight Assistants 1,500
Overnight costs for flight crew and assistant 300
Net increase/decrease in profit -3,200
1

5
 Particulars Amount
Selling price of the silver polish, per ja 4
Selling price of 1/4 pound of Grit 337 0.5
Incremental revenue per jar 3.5

Particulars Amount
Other Ingredients 0.65
Direct labor 1.48
Variable Manufacturing Overhead 37
Variable selling costs 0.3
Incremental variable cost per jar 2.8
Incremental contribution margin 0.7

Particulars Amount
Production Supervisor 3,000
Advertising cost 4,000
Avoidable fixed cost 7,000
Number of jars that must be sold 10,000

Since the total avoidable fixed costs is 7,000, we have to divide that amount by the inc

Particulars Amount
Incremental contribution margin per jar 0.7
Number of jars sold 9,000
Incremental contribution margin 6,300
Less avoidable fixed costs 7,000
Financial disadvantage -700
 Particulars Amount
Incremental contribution margin per jar 0.7
Number of jars sold 11,500
Incremental contribution margin 8,050
Less avoidable fixed costs 7,000
Financial disadvantage 1,050