Question

It costs Mills, Inc. $9 per unit to manufacture 2,000 units per month of a product that it can sell for $38 each. Alternatively, Mills could process the units further into a more complex product, which would cost an additional $22 per unit. Mills could sell the more complex product for $59 each. How would processing the product further affect Mills' profit?. If a decrease, place a –sign in front of your answer.

Duncan Inc. has two divisions, Parker and Ginobili. Following is the income statement for the past month: Parker Ginobili Sales $ 760,700 $ 312,100 Variable Costs 288,200 196,700 Contribution Margin $ _____________ $ ___________ Fixed Costs (allocated) 238,900 173,800 Profit Margin $ ____________ $ _________ What would Duncan's profit margin be if the Ginobili division was dropped? If a loss, indicate with a - (negative sign) before your answer. Example: a loss of $1,000 would be answered -1,000

Deacon Inc. produces leather handbags. The production budget for the next four months is: July 5,840 units, August 6,810, September 7,300, October 8,530. Each handbag requires 0.4 square meters of leather. Deacon Inc.’s leather inventory policy is 25% of next month’s production needs. If the leather policy is met, what will the July 31 inventory be?

Gasol’s Production Inc required production for the next quarter is as follows:

January 11,800

February 13,280

March 14,140

Each unit requires 3 pounds of material. Given a desired ending inventory of 20% of the next month’s production needs, the amount of pounds to be purchased in February is

Answer 1

1	a. Sale of product without process further;
		$
	Selling price per unit	38
	Less: Cost of production per unit	(9)
	Profit per unit	29
	Total profit for 2,000 units ( 2,000 units x $ 29 )	58,000
	b. Sale of product after making into complex product
		$
	Selling price per unit	59
	Less: Cost of production per unit ( $ 9 + $ 22 )	(31)
	Profit per unit	28
	Total profit for 2,000 units ( 2,000 units x $ 29 )	56,000
	Conclusion: Total profit without processing further is higher than the profit from sale of further processed complex product. Therefore , it is better to sale without process further.
2		Parker	Ginobili	Total
		$	$
	Sales	760,700	312,100	1,072,800
	Less: Variable cost	(288,200)	(196,700)	(484,900)
	Contribution Margin	472,500	115,400	587,900
	Less: Fixed Cost	(238,900)	(173,800)	(412,700)
	Profit Margin	233,600	(58,400)	175,200
	If Ginobili division is dropped, Duncan's profit margin would be;
		$
	Profit Margin from Parker Division	233,600
	Less: Fixed cost of Ginobili division	(173,800)
	Total Profit Margin	59,800
3	July 31 inventory of Deacon Inc = ( 6,810 units x 0.4 square meters x 25% ) = 681 square meters of Leather
4	Materials to be purchased by Gasol for the month of February;
	80% of material requirement for the month of February
	( 13,280 units x 3 pounds x 80% )	31,872
	20% of material requirement for the month of March
	(14,140 units x 3 pounds x 20% )	8,484
	Total purchase of materials during the month of February	40,356	Pounds