Question

In: Accounting

1. An entity manufactures 4 products: A C E F CM/Unit $21.16 $30.93 $26.07 $36.62 Kg...

1. An entity manufactures 4 products:

	A	C	E	F
CM/Unit	$21.16	$30.93	$26.07	$36.62
Kg of Y used	1	6	10	2
KG of X used	3.00	4.00	8.32	7.89
Expected demand (units)	3880	1831	953	3867

Material X is very scarce and it is anticipated that only 24324 kg will be available next year. There is expected to be 200,000 kg of material Y available. What is the maximum contribution margin that can be achieved next year?

Select one:

a. $280343

b. $223087

c. $155529

d. $163611

2.

Duvel Ltd. currently manufactures three products: X, Y, and Z. Results from the previous fiscal year for these products are presented below:

	Product X	Product Y	Product Z
Sales - units	7262	5170	9810
Sales price per unit	$76	$42	$64
Variable cost per unit	$56	$35	$34
Fixed costs	$94419	$58822	$159089

Duvel is considering eliminating Product Y in order to focus their efforts on its other two products.

The discontinuation of Product Y is expected to cause the following changes:

	A 16% increase in the production and sales of Product X
	A 6% decrease in the production and sales of Product Z
	63% of the fixed costs of Product Y will be eliminated

What is the incremental (change in) income of the company if Product Y is discontinued?

Select one:

a. $887

b. $6448

c. $-30610

d. $42638

Expert Solution

1. d. $163611

	A	C	E	F	Total
CM/Unit	$21.16	$30.93	$26.07	$36.62
Expected Demand	3880	1831	953	3867
Kg of Y used	1	6	10	2
Total Y	3880	10986	9530	7734	32130
Kg of X used	3	4	8.32	7.89
Total X	11640	7324	7928.96	30510.63	57403.59

CM/Kg of X required	$7.05	$7.73	$3.13	$4.64
Ranking	2	1	4	3

Products as per Ranking	C	A	F	E
Total Kg of X available	24324	17000	5360	0
Used for Production	7324	11640	5360	0
Balance for next best product	17000	5360	0	0
Units Produced	1831	3880	679	0
CM/Unit	$30.93	$21.16	$36.62	$26.07
Total CM	$56,632.83	$82,100.80	$24,877.47	$0.00	$1,63,611

2. b. $6448

Existing Income:

	X	Y	Z	Total
Sales-Units	7262	5170	9810
Sales price per unit	$76	$42	$64
Variable cost per unit	$56	$35	$34
Contribution p.u	$20	$7	$30
Total Contribution	$1,45,240	$36,190	$2,94,300	$4,75,730
Fixed Cost				$3,12,330
Net Income				$1,63,400

Change in Income:

	X	Z	Total
Sales-Units	8424	9221		=7262(1+16%);=9810(1-6%)
Sales price per unit	$76	$64
Variable cost per unit	$56	$34
Contribution p.u	$20	$30
Total Contribution	$1,68,478	$2,76,642	$4,45,120
Fixed Cost			$2,75,272	=94419+(58822*(1-63%))+159089
Net Income			$1,69,848

Difference = $169848-$163400=$6448

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