Question

Gallerani Corporation has received a request for a special order of 5,400 units of product A90 for $28.40 each. Product A90's unit product cost is $27.85, determined as follows:

Direct materials	$	3.30
Direct labor		8.60
Variable manufacturing overhead		7.70
Fixed manufacturing overhead		8.25
Unit product cost	$	27.85

Assume that direct labor is a variable cost. The special order would have no effect on the company's total fixed manufacturing overhead costs. The customer would like modifications made to product A90 that would increase the variable costs by $4.70 per unit and that would require an investment of $14,000 in special molds that would have no salvage value. This special order would have no effect on the company's other sales. The company has ample spare capacity for producing the special order. The annual financial advantage (disadvantage) for the company as a result of accepting this special order should be:

Multiple Choice

• $(36,410)

• $8,140

• $2,970

• $(98,550)

Bruce Corporation makes four products in a single facility. These products have the following unit product costs:

	Products
	A		B		C		D
Direct materials	$	13.70	$	9.60	$	10.40	$	10.00
Direct labor		18.80		26.80		33.00		39.80
Variable manufacturing overhead		3.70		2.10		2.00		2.60
Fixed manufacturing overhead		25.90		34.20		26.00		36.60
Unit product cost	$	62.10	$	72.70	$	71.40	$	89.00

Additional data concerning these products are listed below.

	Products
	A		B		C		D
Grinding minutes per unit		3.20		4.40		3.70		2.80
Selling price per unit	$	75.50	$	92.90	$	86.80	$	103.60
Variable selling cost per unit	$	1.60	$	0.60	$	2.70	$	1.00
Monthly demand in units		3,400		3,400		2,400		2,600

The grinding machines are potentially the constraint in the production facility. A total of 53,100 minutes are available per month on these machines.

Direct labor is a variable cost in this company.

How many minutes of grinding machine time would be required to satisfy demand for all four products?

Multiple Choice

• 42,000

• 53,100

• 31,120

• 8,980

Bruce Corporation makes four products in a single facility. These products have the following unit product costs:

	Products
	A		B		C		D
Direct materials	$	15.90	$	19.80	$	12.80	$	15.50
Direct labor		17.90		21.30		15.70		9.70
Variable manufacturing overhead		4.70		5.90		8.40		5.40
Fixed manufacturing overhead		27.80		14.70		14.80		16.80
Unit product cost		66.30		61.70		51.70		47.40

Additional data concerning these products are listed below.

	Products
	A		B		C		D
Grinding minutes per unit		2.15		1.25		0.85		0.45
Selling price per unit	$	80.20	$	72.60	$	69.40	$	64.10
Variable selling cost per unit	$	2.90	$	3.40	$	3.10	$	3.80
Monthly demand in units	3,300		2,300		2,300		4,300

The grinding machines are potentially the constraint in the production facility. A total of 10,500 minutes are available per month on these machines.

Direct labor is a variable cost in this company.

Which product makes the MOST profitable use of the grinding machines? (Round your intermediate calculations to 2 decimal places.)

Multiple Choice

• Product B

• Product A

• Product C

• Product D

Bruce Corporation makes four products in a single facility. These products have the following unit product costs:

	Products
	A		B		C		D
Direct materials	$	15.30	$	11.20	$	12.00	$	11.60
Direct labor		20.40		28.40		34.60		41.40
Variable manufacturing overhead		5.30		3.70		3.60		4.20
Fixed manufacturing overhead		27.50		35.80		27.60		38.20
Unit product cost		68.50		79.10		77.80		95.40

Additional data concerning these products are listed below.

	Products
	A		B		C		D
Grinding minutes per unit		4.80		6.30		5.30		4.40
Selling price per unit	$	77.10	$	94.50	$	88.40	$	105.20
Variable selling cost per unit	$	3.20	$	2.20	$	4.30	$	2.60
Monthly demand in units		5,000		5,000		4,000		3,000

The grinding machines are potentially the constraint in the production facility. A total of 89,600 minutes are available per month on these machines.

Direct labor is a variable cost in this company.

Up to how much should the company be willing to pay for one additional minute of grinding machine time if the company has made the best use of the existing grinding machine capacity? (Round your intermediate calculations to 2 decimal places.) 1_04_2014_QC_58425, 11_17_2014_QC_58425,Garrison 16e Rechecks 2017-09-13

Multiple Choice

• $10.32

• $3.20

• $6.40

• $8.85

Answer 1

1. answer is option B $8,140

Incremental net operating income = incremental revenue – incremental expenses

= (5400*28.40)-((5400*(3.30+8.60+7.70+4.70))+14000) = 8140

2. answer is option A 42,000

	A	B	C	D	Total
Grinding minutes per unit	3.20	4.40	3.70	2.80
Monthly demand in units	3400	3400	2400	2600
Minutes of grinding time	10880	14960	8880	7280	42000

3. answer is option D Product D

	A	B	C	D
Direct materials	15.30	11.20	12	11.60
Direct labor	20.40	28.40	34.60	41.40
Variable manufacturing overhead	5.30	3.70	3.60	4.20
Variable selling cost per unit	3.20	2.20	4.30	2.60
Variable cost per unit	44.2	45.5	54.5	59.8
Selling price per unit	77.10	94.50	88.40	105.20
Variable selling cost per unit	44.2	45.5	54.5	59.8
Contribution margin per unit (a)	32.9	49	33.9	45.4
Amount of the constrained resource required to produce one unit (b)	4.80	6.30	5.30	4.40
Contribution margin per unit of the constrained resource (a) ÷ (b)	6.85	7.78	6.40	10.32
Ranking	3	2	4	1

4. answer is option C $6.40

It should be equal least to least contribution margin per unit of constrained resource