ACG 4361 Test 2 Sample Problems SOLUTION
Lugozi Company manufactures three sizes of kitchen appliances: small, medium, and large. Product information is provided below.
Small Medium Large
Unit selling price $300 $500 $1,000
Variable manufacturing (120) (240) (400)
Fixed manufacturing (80) (100) (240)
Variable selling and administrative (60) (60) (60)
Unit profit $ 40 $ 100 $300
Machine-hours per unit 20 40 100
The maximum machine-hours available are 20,000 per week. Lugozi must produce at least 50 of each product to meet minimum demand. Name the 'amounts' that you must calculate and compare for the two frame models in order to determine which product that you should produce the most units. Be specific for Lugozi.
Contribution margin per machine hour
Problem 2 Heck's Kitchens is approached by Mr. Louis Cifer, a new customer, to fulfill a 60 unit one-time-only special order for a product similar to one offered to regular customers.
The following per unit data apply for sales to regular customers:
Direct materials $455
Direct labor 300
Variable manufacturing support 45
Fixed manufacturing support 100
Total manufacturing costs 900
Markup (60%) 540
Targeted selling price $1,440
Heck's Kitchens has excess capacity. Mr. Cifer wants the cabinets in cherry rather than oak, so direct material costs will increase by $50 per unit. CIfer wants to pay only a 20% markup. For Heck's Kitchens, what is the minimum acceptable price of this one-time-only special order? Prepare an incremental analysis in good form.
Minimum acceptable price = $455 + $300 + $45 + $50 = $850
Unit price = ($455 + $300 + $45 + $50)*120% =
Total price of the order ($1,020*60)
Incremental revenue ($1,020*60)
Incremental VC ($850*60)
Incremental increase in profit if accept special order