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Audit Management at Price

Autor:   •  March 4, 2015  •  Essay  •  5,045 Words (21 Pages)  •  972 Views

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Q. 2 (a)

Cruiser - LX

=1,800 x (600/200) = 5,400 hours

Cruiser - EX

=2,400 x (500/200) = 6,000 hours

Boater - LX

=4,500 x (500/200) = 11,250 hours 

Boater - EX

=4,200 x (400/200) = 8,400 hours

Canoe Star

=39,000 x (200/200) = 39,000 hours

Q. 2(b)

                      Cruiser–LX    Cruiser–EX    Boater–LX   Boater–EX   Canoe–Star  

                          $            $            $            $           $

Sales                   5,400,000      5,760,000      9,450,000    8,400,000    31,200,000      

Less: Variable costs

 Sales Commissions(10%)  270,000       288,000        472,500      420,000     3,120,000

 Direct Materials         1,350,000      1,560,000      2,250,000    2,100,000     3,900,000

 Variable Machining      1,080,000      1,200,000      2,250,000    1,680,000     7,800,000

 Variable manufacturing  

 Overhead               270,000        300,000       562,500      420,000     1,950,000

Contribution Margin(CM)  2,430,000      2,412,000       3,915,000    3,780,000    14,430,000

CM / unit                 $1,350        $1,005          $870         $900        $370

Q. 2(c)

Cruiser–LX    Cruiser–EX    Boater–LX   Boater–EX   Canoe–Star  

                          $            $            $            $           $

CM / unit                1,350         1,005         870          900          370

Machine hours / unit         3           2.5           2.5           2            1

CM / Machine hour         450          402          348          450          370  

Annual capacity = 60,000 machine hours (given)

Cruiser–LX    Cruiser–EX    Boater–LX   Boater–EX   Canoe–Star

Priority                   1st           2nd          4th          1st              3rd

Machine hours         5,400hours      6,000hours    4,800hours   4,800hours   39,000hours    

Most profitable

production levels       1,800units      2,400units     1,920units    4,200units    39,000units

   

Q. 2(d)

The optimal product mix in Q. 2(c) leaves 2,580 units (4500-1920) of Boater - EX unfilled.

These remaining units of Boater - EX require 6,450 machine hours (2, 580 units x 2.5 MH per unit).  The maximum price Taylor is willing to pay for extra machine hours is $348, which is the unit contribution per machine hour for additional units of Boater – EX. That is, total cost per machine-hour for these units will be $348 + $200 (variable cost per machine-hour) = $548 per machine-hour.

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