acc problem 26 1

PROBLEM 26-1 : Dover Rubber Company
If volume is "100.000" ;
Revenue = 73.50$ x 100.000 = 7.350.000 $
Variable cost = 34.30$ x 100.000 = 3.430.000 $
Contribution Margin = 7.350.000 - 3.430.000 = 3.920.000 $
If volume is "500.000" ;
Revenue = 41.65$ x 500.000 = 20.825.000 $
Variable cost = 34.30$ x 500.000 = 17.150.000 $
Contribution Margin = 20.825.000 - 17.150.000 = 3.675.000 $
** According to the calculations, Dover Rubber Company should reject the offer because the difference between two contribution margin is 275.000$.
PROBLEM 26-2 : Vulcan Swimsuit Company
Fixed costs = 861.840$ x 35% x 1/3 = 100.548$
861.840 - 100.548 = 761.292$
Contribution Margin = 950.760$ - 761.292$ = 189.468$
** According to the analysis, the contribution margin is 189.468$. The line should not be dropped because this is the contribution to fixed cost and profits.
PROBLEM 26-3 : George Jack's Company
a. 5000-unit custom order calculations
1) The differential cost of the order
Material cost : 4.50$
Labor cost : 8.00$
Special device : 4.500$
Total costs for order = Material + Labor + Special device = 22.500 + 40.000 + 4.500 = 67.000$
** Reducing the output of his standard product by about one-half;
Reduced costs = 8.000 + 9.000 + 900 (Other) = 17.900$
Differential Cost of the Order = 67.000 - 17.900 = 49.100$
2) The full cost of the order
Costs to fill order : 67.000$
Full cost = 67.000 + 1/2 x (Depreciation + Power + Rent + Heat and Light) = 67.000 + 1/2 x (7.200 + 800 + 2.000 + 200) = 72.100$
3) The opportunity cost of taking the order
1/2 x (Standard sales amount) = 25.000$
** Depreciation, rent, heat and light are not affected by the order; for this reason, we should only take half of the material, labor, power and other costs.
Opportunity Cost = 25.000 - 1/2 x (16.000 + 18.000 + 800 + 1.800) = 25.000 - 18.300 = 6.700$
4) The sunk costs related to the order
** Since depreciation, rent, heat and light, power cannot be changed by any decision, these are sunk costs.
Sunk costs =