ADMS 3510 Study Guide - Midterm Guide: Deutsche Luft Hansa, Filigree, Contribution Margin

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champagnehyena339

14 Sep 2014

School

York University

Department

Administrative Studies

Course

ADMS 3510

Professor

Douglas Kong

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Document Summary

Only the incremental costs and benefits are relevant. In particular, only the variable manufacturing overhead and the cost of the special tool are relevant overhead costs in this situation. The other manufacturing overhead costs are fixed and are not affected by the decision. (5 marks) Even though the price for the special order is below the company"s regular price for such an item, the special order would add to the company"s operating income by $ 614. 50 and should be accepted. (2 marks) Contribution margin per direct labour-hour (1) (4) 2013 fall mid term exam 2 solutions (2 marks) Direct labour-hours available 3,000 3,000 3,000. Although product a has the lowest contribution margin per unit and the second lowest contribution margin ratio, it has the highest contribution margin per direct labour-hour. Since labour time seems to be the company"s constraint, this measure should guide management in its production decisions.

Related Questions

Exercise 10-4 Evaluating a Special Order [LO10-4] Imperial Jewelers is considering a special order for 22 handcrafted gold bracelets to be given as gifts to members of a wedding party. The normal selling price of a gold bracelet is $408.00 and its unit product cost is $262.00 as shown below:

Direct materials $ 141

Direct labor 87

Manufacturing overhead 34

Unit product cost $ 262

Most of the manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However, $14 of the overhead is variable with respect to the number of bracelets produced. The customer who is interested in the special bracelet order would like special filigree applied to the bracelets. This filigree would require additional materials costing $13 per bracelet and would also require acquisition of a special tool costing $460 that would have no other use once the special order is completed. This order would have no effect on the companyâs regular sales and the order could be fulfilled using the companyâs existing capacity without affecting any other order.

Required: 1. What effect would accepting this order have on the companyâs net operating income if a special price of $368.00 per bracelet is offered for this order? (Enter all amounts as positive values.)

Note: Per Unit and Total 24 Bracelets

Incremental revenue

Incremental costs:

Variable costs:

Direct materials

Direct labor

Variable manufacturing overhead

Special filigree

Total variable cost

Fixed costs:

Purchase of special tool

Total incremental cost

Incremental net operating income (loss)

2. Should the special order be accepted at this price? Yes No

lemonwolf41

Imperial Jewelers is considering a special order for 23handcrafted gold bracelets to be given as gifts to members of awedding party. The normal selling price of a gold bracelet is$407.00 and its unit product cost is $275.00 as shown below:

Direct Materials	$149
Direct labor	$87
Manufacturing Overhead	$39
Unit Product cost	$275

Most of the manufacturing overhead is fixed and unaffected byvariations in how much jewelry is produced in any given period.However, $11 of the overhead is variable with respectto the numberof bracelets produced. The customer who is interested in thespecial bracelet order would like special filigree applied to thebracelets. This filigree would require additional materials costing$10 per bracelet and would also require acquisition of a specialtool costing $452 that would have no other use once the specialorder is completed. This order would have no effect on thecompanyâs regular sales and the order could be fulfilled using thecompanyâs existing capacity without affecting any other order.

Required:

What effect would accepting this order have on the companyâs netoperating income if a special price of $367.00 per bracelet isoffered for this order?

	Per unit	Total 23 bracelets
Incremental revenue
Incremental costs
Variable costs:
Direct materials
Direct labor
Variable manufacturing overhead
Special filigree
Total variable cost
Fixed costs:
Purchase of special tool
Total incremental cost
Incremental net operating income (loss)

Should the special order be accepted at this price?

Yes

rosezebra334

Imperial Jewelers is considering a special order for 11handcrafted gold bracelets to be given as gifts to members of awedding party. The normal selling price of a gold bracelet is$402.00 and its unit product cost is $265.00 as shown below:


Directmaterials	$	150
Direct labor		84
Manufacturingoverhead		31

Unit productcost	$	265

Most of the manufacturing overhead is fixed and unaffected byvariations in how much jewelry is produced in any given period.However, $7 of the overhead is variable with respect tothe number of bracelets produced. The customer who is interested inthe special bracelet order would like special filigree applied tothe bracelets. This filigree would require additional materialscosting $6 per bracelet and would also require acquisition of aspecial tool costing $459 that would have no other use once thespecial order is completed. This order would have no effect on thecompanyâs regular sales and the order could be fulfilled using thecompanyâs existing capacity without affecting any other order.

Required:

What effect would accepting this order have on the companyâs netoperating income if a special price of $362.00 per bracelet isoffered for this order? (Enter all amounts as positivevalues.)

	PER UNIT	TOTAL 11 BRACELETS
incremental revenue
incremental costs:
Variable costs:
direct materials
direct labor
variable manufacturing overhead
special filigree
Total variable cost:
Fixed costs:
purchase of tool
Total incremental cost
Incremental net operating income (loss)

2. Should the special order be accepted at this price?

ADMS 3510 Study Guide - Midterm Guide: Deutsche Luft Hansa, Filigree, Contribution Margin

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