Fundamental Managerial Accounting Concepts
Fundamental Managerial Accounting Concepts
8th Edition
ISBN: 9781259569197
Author: Thomas P Edmonds, Christopher Edmonds, Bor-Yi Tsay, Philip R Olds
Publisher: McGraw-Hill Education
bartleby

Videos

Question
Book Icon
Chapter 6, Problem 32PSB

a.

To determine

The product that must be manufactured or sold if the demand is greater than the company’s capacity.

a.

Expert Solution
Check Mark

Explanation of Solution

Scarce resource utilization: It is a decision is a result with respect to the superlative utilization of scarce resources in order to boost the net income of a business. Scarcity of various resources positions imperatives on the measure of item that can be created utilizing those resources.

Outsourcing: It can be termed as conveying all or part of an activity to a supplier or a provider. While outsourcing was initially limited to fundamental activities, it as of now invades the administration of numerous organizations.

Opportunity cost: Opportunity cost is the forfeit of certain benefits such as cost savings, incomes, which is surrendered by not picking an option. Opportunity costs are applicable in decisions where the acknowledgment of one option disqualifies the likelihood of selecting different alternatives.

The product that must be produced or sold if the demand is higher than the company’s capacity is as follows:

While Product N manufactures a greater greater contribution margin per unit, the thought should likewise be given to the labor that it takes to create every item. This can be practiced by estimating the contribution margin per labor hour.

Determine the contribution per margin for each product

ContributionMarginProductM=[Selling Price per unitVariable Cost per unit]=[$36$24]=$12

ContributionMarginProductN=[Selling Price per unitVariable Cost per unit]=[$45$30]=$15

Therefore the contribution per margin for Product M is $12 and Product N is $15.

Determine the contribution margin per labor hour for each product

ContributionMarginperlaborhourProductM=[ContributionMarginLaborHours]=[$123]=$4

ContributionMarginperlaborhourProductN=[ContributionMarginLaborHours]=[$15$5]=$3

Therefore the contribution margin per labor hour for Product M is $4 and Product N is $3.

Conclusion

From the results obtained above, according to the contribution margin per labor hour, Product M should be produced.

Therefore Product M should be produced.

b.

To determine

The product that should be manufactured or sold if the products are sold to the public in retail stores.

b.

Expert Solution
Check Mark

Explanation of Solution

The product that must be manufactured or sold if the products are sold to the public in retail stores is as follows:

Since the company can stock one item as a result of limited floor space, the item that provides the higher total contribution margin should be selected. Unmistakably, Product N has the greater contribution margin per unit. However the company can sell additional units of Product M.

Determine the total contribution margin for each product

ContributionMarginProductM=[ContributionMargin×UnitsProducedandSold]=[$12×8,000]=$96,000

ContributionMarginProductN=[ContributionMargin×UnitsProducedandSold]=[$15×7,000]=$105,000

Therefore the total contribution margin for Product M is $96,000 and Product N is $105,000.

Conclusion

From the results obtained, Product N has the greater contribution margin per unit and the greater total contribution margin. Hence, Product N should be sold.

Therefore Product N should be sold.

c.

To determine

The product that should be produced or sold if the company can sell all the products it produces.

c.

Expert Solution
Check Mark

Explanation of Solution

The product that should be produced or sold if the company can sell all the products it manufactures are as follows:

While Product N has the greater contribution margin per unit, the thought must be provided to the machine hours necessary to create the items. This can be achieved by figuring the contribution margin for a machine hour. According to the contribution margin per machine hour, Product M should be created. Provided that the company has a highest capacity of 24,000 machine hours and can trade every one of the items it manufactures, Product M will expand the profits by $72,000 where Product N can just build the profits by $60,000.

Determine the total contribution margin per machine per hour for each product

ContributionMarginperhourProductM=[ContributionMarginMachineHours]=[$124]=$3

ContributionMarginperhourProductB=[ContributionMarginMachineHours]=[$156]=$2.50

Therefore the total contribution margin per machine per hour for Product M is $3 and Product N is $2.50.

Determine the increase in profit for each product

IncreaseinProfitProductM=[MachineHours×ContributionMarginperhour]=[24,000×$3]=$72,000

IncreaseinProfitProductN=[MachineHours×ContributionMarginperhour]=[24,000×$2.50]=$60,000

Therefore the increase in profit for Product M is $72,000 and Product N is $60,000.

Conclusion

From the results obtained, Product N makes higher profit per unit, yet the productivity relies upon the quantity of machine hours associated with creating the item. Product M manufactures a higher profit for each machine hour since it takes less machine hours to manufacture. Hence Product M should be produced.

Therefore Product M should be produced.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Chapter 6 Solutions

Fundamental Managerial Accounting Concepts

Ch. 6 - Prob. 4QCh. 6 - Prob. 5QCh. 6 - Prob. 6QCh. 6 - Prob. 7QCh. 6 - Prob. 8QCh. 6 - Prob. 9QCh. 6 - Prob. 10QCh. 6 - Prob. 11QCh. 6 - Prob. 12QCh. 6 - Prob. 13QCh. 6 - Prob. 14QCh. 6 - Prob. 15QCh. 6 - Prob. 16QCh. 6 - Prob. 17QCh. 6 - Prob. 18QCh. 6 - Prob. 19QCh. 6 - Prob. 20QCh. 6 - Prob. 1ESACh. 6 - Prob. 2ESACh. 6 - Prob. 3ESACh. 6 - Prob. 4ESACh. 6 - Prob. 5ESACh. 6 - Prob. 6ESACh. 6 - Prob. 7ESACh. 6 - Prob. 8ESACh. 6 - Prob. 9ESACh. 6 - Prob. 10ESACh. 6 - Prob. 11ESACh. 6 - Prob. 12ESACh. 6 - Prob. 13ESACh. 6 - Prob. 14ESACh. 6 - Prob. 15ESACh. 6 - Prob. 16ESACh. 6 - Prob. 17ESACh. 6 - Prob. 18ESACh. 6 - Prob. 19ESACh. 6 - Prob. 20ESACh. 6 - Prob. 21ESACh. 6 - Prob. 22ESACh. 6 - Prob. 23PSACh. 6 - Problem 6-24A Context-sensitive...Ch. 6 - Prob. 25PSACh. 6 - Prob. 26PSACh. 6 - Prob. 27PSACh. 6 - Problem 6-28A Eliminating a segment Western Boot...Ch. 6 - Prob. 29PSACh. 6 - Problem 6-30A Comprehensive problem including...Ch. 6 - Prob. 31PSACh. 6 - Prob. 32PSACh. 6 - Prob. 1ESBCh. 6 - Prob. 2ESBCh. 6 - Prob. 3ESBCh. 6 - Prob. 4ESBCh. 6 - Prob. 5ESBCh. 6 - Prob. 6ESBCh. 6 - Prob. 7ESBCh. 6 - Prob. 8ESBCh. 6 - Prob. 9ESBCh. 6 - Prob. 10ESBCh. 6 - Prob. 11ESBCh. 6 - Prob. 12ESBCh. 6 - Prob. 13ESBCh. 6 - Prob. 14ESBCh. 6 - Prob. 15ESBCh. 6 - Prob. 16ESBCh. 6 - Prob. 17ESBCh. 6 - Prob. 18ESBCh. 6 - Prob. 19ESBCh. 6 - Prob. 20ESBCh. 6 - Prob. 21ESBCh. 6 - Prob. 22ESBCh. 6 - Prob. 23PSBCh. 6 - Prob. 24PSBCh. 6 - Problem 6-25B Effect of order quantity on special...Ch. 6 - Prob. 26PSBCh. 6 - Prob. 27PSBCh. 6 - Prob. 28PSBCh. 6 - Prob. 29PSBCh. 6 - Problem 6-30B Comprehensive problem including...Ch. 6 - Prob. 31PSBCh. 6 - Prob. 32PSBCh. 6 - ATC 6-1 Business Application Case Analyzing...Ch. 6 - Prob. 2ATCCh. 6 - Prob. 3ATCCh. 6 - Prob. 4ATCCh. 6 - Prob. 5ATCCh. 6 - Prob. 6ATCCh. 6 - Prob. 7ATCCh. 6 - Prob. 1CP
Knowledge Booster
Background pattern image
Accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Text book image
FINANCIAL ACCOUNTING
Accounting
ISBN:9781259964947
Author:Libby
Publisher:MCG
Text book image
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Text book image
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Text book image
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Text book image
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Text book image
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education
Relevant Costing Explained; Author: Kaplan UK;https://www.youtube.com/watch?v=hnsh3hlJAkI;License: Standard Youtube License