AE 1 --Evaluate production constraint decisions using quantitative factors and assess special order decisions Rainbow Company produces the following types of paint: RED $50.00 $20.00 4 Selling Price per can Variable cost per can Product mix Direct material W (kg) per can 3kg Fixed manufacturing costs are $1,400,000 for the month BLUE $65.00 $25.00 4 5kg YELLOW $60.00 $25.00 4 7kg PINK $55.00 $20.00 8 5kg (a) Compute the contribution margin per can of each type of paint and the weighted contribution margin (b) Compute the contribution margin per direct material W. Determine which type of paint will have the highest contribution margin per direct material W (c) What is the breakeven number of cans per month? Show the breakeven quantity by the type of paint (d) Total production capacity = 80,000 cans per month for all types of paint Current production of BLUE paint in a month = 13,000 cans Rainbow Company receives a special order from Wonder Company to purchase 2,000 cans of SKY BLUE paint at $45.00 per can. In order to produce SKY BLUE paint, Rainbow Company will need to add a chemical Z to the production of BLUE paint. Chemical Z costs $4.00 per kg and 2kg of Chemical Z is required to produce a can of SKY BLUE paint Should Paint Company accept this special order?
AE 1 --Evaluate production constraint decisions using quantitative factors and assess special order decisions Rainbow Company produces the following types of paint: RED $50.00 $20.00 4 Selling Price per can Variable cost per can Product mix Direct material W (kg) per can 3kg Fixed manufacturing costs are $1,400,000 for the month BLUE $65.00 $25.00 4 5kg YELLOW $60.00 $25.00 4 7kg PINK $55.00 $20.00 8 5kg (a) Compute the contribution margin per can of each type of paint and the weighted contribution margin (b) Compute the contribution margin per direct material W. Determine which type of paint will have the highest contribution margin per direct material W (c) What is the breakeven number of cans per month? Show the breakeven quantity by the type of paint (d) Total production capacity = 80,000 cans per month for all types of paint Current production of BLUE paint in a month = 13,000 cans Rainbow Company receives a special order from Wonder Company to purchase 2,000 cans of SKY BLUE paint at $45.00 per can. In order to produce SKY BLUE paint, Rainbow Company will need to add a chemical Z to the production of BLUE paint. Chemical Z costs $4.00 per kg and 2kg of Chemical Z is required to produce a can of SKY BLUE paint Should Paint Company accept this special order?
Chapter5: Process Costing
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Transcribed Image Text:AE 1 -Evaluate production constraint decisions using quantitative factors and assess special order
decisions
Rainbow Company produces the following types of paint:
RED
$50.00
$20.00
4
Selling Price per can
Variable cost per can
Product mix
Direct material W (kg) per can
3kg
Fixed manufacturing costs are $1,400,000 for the month
BLUE
$65.00
$25.00
4
5kg
YELLOW
$60.00
$25.00
4
7kg
PINK
$55.00
$20.00
8
5kg
(a) Compute the contribution margin per can of each type of paint and the weighted contribution
margin
(b) Compute the contribution margin per direct material W. Determine which type of paint will have
the highest contribution margin per direct material W
(c) What is the breakeven number of cans per month? Show the breakeven quantity by the type of
paint
(d) Total production capacity = 80,000 cans per month for all types of paint
Current production of BLUE paint in a month =13,000 cans
Rainbow Company receives a special order from Wonder Company to purchase 2,000 cans of SKY
BLUE paint at $45.00 per can. In order to produce SKY BLUE paint, Rainbow Company will need to
add a chemical Z to the production of BLUE paint. Chemical Z costs $4.00 per kg and 2kg of
Chemical Z is required to produce a can of SKY BLUE paint
Should Paint Company accept this special order?
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