Accounting MRK108 Chapter Notes - Chapter 18.2: Demand Curve, Marginal Cost, Diminishing Returns
Document Summary
Get access
Related Documents
Related Questions
Question 16
Red Rock Company sells a single product that has variable costsof $14 per unit. Fixed costs will remain constant across all levelsof sales shown.
Units Sold | Price per Unit |
80,000 | $35 |
90,000 | $33 |
100,000 | $31 |
110,000 | $29 |
120,000 | $27 |
What price should Red Rock charge to maximize profits?
| A. | $33 | |
| B. | $29 | |
| C. | $31 | |
| D. | $27 | |
| E. | $35 |
2 points
Question 17
Core Manufacturing makes a single product. Budget informationregarding the current period is given below:
| Revenue (100,000 units at $8.00) | $800,000 |
| Direct materials | $170,000 |
| Direct labor | 125,000 |
| Variable manufacturing overhead | 235,000 |
| Fixed manufacturing overhead | 110,000 | 640,000 |
| Net income | $160,000 |
Deer Company approaches Core with a special order for 15,000 unitsat a price of $8.50 per unit. Variable costs will be the same asthe current production and accepting the special order will nothave any impact on the rest of the company's orders. However, Coreis operating at capacity and will incur an additional $55,000 infixed manufacturing overhead if the order is accepted. What is theincremental income (loss) associated with accepting the specialorder?
| A. | $48,000 | |
| B. | ($7,000) | |
| C. | $134,500 | |
| D. | ($23,500) |
2 points
Question 18
Jackson Company is trying to determine the optimal price tocharge for its PUNCH model. Jackson has fixed costs of $50,000 andthe PUNCH has variable costs of $12.00 per unit. Jackson hasdetermined that the following relationships exist between price anddemand:
Price | Demand |
$20 | 6,875 |
$19 | 8,800 |
$18 | 10,000 |
$17 | 11,000 |
What is the contribution margin for a price of $20?
| A. | $12.00 | |
| B. | $8.00 | |
| C. | $10.00 | |
| D. | $6.00 |
Question 21
Wharton Company has the capacity to produce 50,000 units peryear. The company sells each unit for $125. Budgeted information isas follows:
| Revenues | $5,612,000 |
| Direct materials | $1,932,000 |
| Direct labor | 552,000 |
| Manufacturing overhead (fixed) | 276,000 |
| Manufacturing overhead (variable) | 552,000 | 3,312,000 |
| Total | $2,300,000 |
A special order has been received for 5,000 units to be sold for$80 per unit. The company would incur an additional $60,000 intotal fixed costs in order to lease a special machine in order tomake a slight modification to the original product. Should thecompany accept the special order?
| A. | Yes, the revenue will increase substantially. | |
| B. | No, total costs would increase by $303,600. | |
| C. | Yes, profit will increase by $36,400. | |
| D. | No, accepting this order would decrease profits to$2,263,600. |
2 points
Question 22
Billings Company sells one product with a variable cost of $4per unit. The company is unsure what price to charge in order tomaximize profits. The price charged will also affect the demand asshown below.
Units Sold | Price |
20,000 | $9 |
30,000 | $8 |
35,000 | $7 |
50,000 | $6 |
If fixed costs are $100,000 and the chart represents the demand atvarious prices, what price should be charged in order to maximizeprofits?
| A. | $7 | |
| B. | $8 | |
| C. | $9 | |
| D. | $6 |
Banner Company produces three products: A, B, and C. The sellingprice, variable costs, and contribution margin for one unit of eachproduct follow: |
Product | |||||||||||
| A | B | C | |||||||||
| Selling price | $ | 120 | $ | 110 | $ | 160 | |||||
| Variable costs: | |||||||||||
| Direct materials | 75.00 | 41.50 | 108.00 | ||||||||
| Direct labor | 7.50 | 25.00 | 10.00 | ||||||||
| Variable manufacturing overhead | 1.50 | 5.00 | 2.00 | ||||||||
| Total variable cost | 84.00 | 71.50 | 120.00 | ||||||||
| Contribution margin | $ | 36.00 | $ | 38.50 | $ | 40.00 | |||||
| | | | | | | | | | | | |
| Contribution margin ratio | 30 | % | 35 | % | 25 | % | |||||
| | | | | | | | | | | | |
Due to a strike in the plant of one of its competitors, demand forthe company%u2019s products far exceeds its capacity to produce.Management is trying to determine which product(s) to concentrateon next week in filling its backlog of orders. The direct laborrate is $5 per hour, and only 3,290 hours of labor time areavailable each week. |
| Required: |
| 1. | Compute the amount of contribution margin that will be obtained perhour of labor time spent on each product. (Round yourintermediate calculations and final answers to 2 decimalplaces.) |
| A | B | C | |
| Contribution margin per labor hour | $ | $ | $ |
| 2. | Which orders would you recommend that the company work on nextweek%u2014the orders for product A, product B, or product C? | ||||||
|
| 3. | By paying overtime wages, more than 3,290 hours of direct labortime can be made available next week. Up to how much should thecompany be willing to pay per hour in overtime wages as long asthere is unfilled demand for the three products? (Round yourintermediate calculations and final answers to 2 decimalplaces.) |
| Maximum amount | $ per hour |
