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1. Premium Printers provides printing services to two customers, Bond and Burns. There is a maximum capacity of 640 machine hours each month. Data for August are as follows. We anticipate doing the same business for both customers in September. Fixed Costs are allocated based on DL hours. (A) (B) Revenues Variable Costs Contribution Margin Fixed Costs (allocated) Operating Income (Loss) Machine hours used Bond $ 12,000 $ 4,200 $ 7,800 $ 5,000 $ 2,800 480 MH Burns $ 6,500 $ 3,600 $ 2,900 $3,000 $ (100) 160 MH Total $ 18,500 $ 7,800 $ 10,700 $ 8,000 $ 2,700 640 MH Although it looks like we are losing money on Burns, are we really? Explain. On September 1, Burns comes to us with a special print request that would double the revenues, variable costs, and required machine hours from August. If we accept this offer, we will have to reduce the number of machine hours given to Bond because there are only 640 MH available. Revenues and variable costs on Bond's print jobs would reduce proportionately. (a) Based on financial considerations only, should we accept Burns' offer? Support your answer with orderly calculations. (b) Assuming Burns' offer increases our Operating Income, why might we decline the offer? (c) Assuming Burns' offer decreases our Operating Income, why might we accept the ben offer? ok anjidas

1. Premium Printers provides printing services to two customers, Bond and Burns. There is a maximum capacity of 640 machine hours each month. Data for August are as follows. We anticipate doing the same business for both customers in September. Fixed Costs are allocated based on DL hours. (A) (B) Revenues Variable Costs Contribution Margin Fixed Costs (allocated) Operating Income (Loss) Machine hours used Bond $ 12,000 $ 4,200 $ 7,800 $ 5,000 $ 2,800 480 MH Burns $ 6,500 $ 3,600 $ 2,900 $3,000 $ (100) 160 MH Total $ 18,500 $ 7,800 $ 10,700 $ 8,000 $ 2,700 640 MH Although it looks like we are losing money on Burns, are we really? Explain. On September 1, Burns comes to us with a special print request that would double the revenues, variable costs, and required machine hours from August. If we accept this offer, we will have to reduce the number of machine hours given to Bond because there are only 640 MH available. Revenues and variable costs on Bond's print jobs would reduce proportionately. (a) Based on financial considerations only, should we accept Burns' offer? Support your answer with orderly calculations. (b) Assuming Burns' offer increases our Operating Income, why might we decline the offer? (c) Assuming Burns' offer decreases our Operating Income, why might we accept the ben offer? ok anjidas

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter7: Allocating Costs Of Support Departments And Joint Products
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1. Premium Printers provides printing services to two customers, Bond and Burns. There is a maximum capacity of 640 machine hours each month. Data for August are as follows. We anticipate doing the same business for both customers in September. Fixed Costs are allocated based on DL hours. (A) (B) Revenues Variable Costs Contribution Margin Fixed Costs (allocated) Operating Income (Loss) Machine hours used Bond $ 12,000 $ 4,200 $ 7,800 $ 5,000 $ 2,800 480 MH Burns $ 6,500 $ 3,600 $ 2,900 $3,000 $ (100) 160 MH Total $ 18,500 $ 7,800 $ 10,700 $ 8,000 $ 2,700 640 MH moll antenoqrossm Although it looks like we are losing money on Burns, are we really? Explain. On September 1, Burns comes to us with a special print request that would double the revenues, variable costs, and required machine hours from August. If we accept this offer, we will have to reduce the number of machine hours given to Bond because there are only 640 MH available. Revenues and variable costs on Bond's print jobs would reduce proportionately. (a) Based on financial considerations only, should we accept Burns' offer? Support your answer with orderly calculations. (b) Assuming Burns' offer increases our Operating Income, why might we decline the offer? pro (c) Assuming Burns' offer decreases our Operating Income, why might we accept the ben v offer?
Transcribed Image Text:1. Premium Printers provides printing services to two customers, Bond and Burns. There is a maximum capacity of 640 machine hours each month. Data for August are as follows. We anticipate doing the same business for both customers in September. Fixed Costs are allocated based on DL hours. (A) (B) Revenues Variable Costs Contribution Margin Fixed Costs (allocated) Operating Income (Loss) Machine hours used Bond $ 12,000 $ 4,200 $ 7,800 $ 5,000 $ 2,800 480 MH Burns $ 6,500 $ 3,600 $ 2,900 $3,000 $ (100) 160 MH Total $ 18,500 $ 7,800 $ 10,700 $ 8,000 $ 2,700 640 MH moll antenoqrossm Although it looks like we are losing money on Burns, are we really? Explain. On September 1, Burns comes to us with a special print request that would double the revenues, variable costs, and required machine hours from August. If we accept this offer, we will have to reduce the number of machine hours given to Bond because there are only 640 MH available. Revenues and variable costs on Bond's print jobs would reduce proportionately. (a) Based on financial considerations only, should we accept Burns' offer? Support your answer with orderly calculations. (b) Assuming Burns' offer increases our Operating Income, why might we decline the offer? pro (c) Assuming Burns' offer decreases our Operating Income, why might we accept the ben v offer?
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