x x

x x
x x
x x
x x
x x
x x
x x
x x
x x
x x
x x
CM lost if Linens Department is Eliminated
Lines department total CM 600000
10% handware department CM 210000
Less: Fixed Costs that can be Avoided 460000

Deacrease in overall company NOI 350000

Non to drop the linens department.

 Per unit
Differential Costs 30000 units
Make Buy Make
DM 3.6
DL 10
VMO 2.4
FMO 3
Outside purch. Price 21
Total Cost 19 570000
Rental Value of the Space 80000
650000
Difference in favor of buying from outsider supplier20000
 30000 units
Buy

630000

ng from outsider supplier20000

Special Order
 Per Unit Total

Incremental Revenues 16995 3399

Incremental Expenses
Variable expenses
DM 84
DL 45
VMOH 4
Special h. 2
Total variable expenses 135 2700

Fixed expenses
Special equipment 250

Total incremental expenses 2950

Incremental NOI 449

Decision: Accept the order due to incremental NOI

 A B C

CM per unit 32 14 21

DM to produce one unit 8 5 3

CM/unit of the contrained resource 4 2.8 7

First product to be sutisfy customers demand is C CM per pund 7

Second product to satisfy customers demand is A CM per pund 4

Third product to satisfy customers demand is B CM per pound 2.8

Sell or Process Further
 A B C

Final Sales Value after Additional Processing $ 20.00 $ 13.00 $ 32.00

Less: Sales Value at the Split-off Point $ 16.00 $ 8.00 $ 25.00
Incremental Price per unit $ 4.00 $ 5.00 $ 7.00

Incremental Revenue from further processing 60000 100000 28000

Less: Cost of further processing 63000 80000 36000

Profit/Loss from further processing -30000 20000 -8000

Further process only B as it has the profit from further processing A and C has a loss