ACCOUNTING
ACCOUNTING
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| Steve has just returned from salmon fishing. He was lucky on this trip and brought home two salmon. Steve’s wife, Wendy, disapproves of fishing, and to discourage Steve from further fishing trips, she has presented him with the following cost data. The cost per fishing trip is based on an average of 10 fishing trips per year. |
| Cost per fishing trip: | ||
| Depreciation on fishing boat* (annual depreciation of $2,000 ÷ 10 trips) | $ | 200 |
| Boat storage fees (annual rental of $1,600 ÷ 10 trips) | 160 | |
| Expenditures on fishing gear, except for snagged lures (annual expenditures of $270 ÷ 10 trips) |
27 | |
| Snagged fishing lures | 7 | |
| Fishing license (yearly license of $40 ÷ 10 trips) | 4 | |
| Fuel and upkeep on boat per trip | 20 | |
| Junk food consumed during trip | 7 | |
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| Total cost per fishing trip | $ | 425 |
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| Cost per salmon ($425 ÷ 2 salmon) | $ | 212.50 |
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| *The original cost of the boat was $20,000. It has an estimated useful life of 10 years, after which it will have no resale value. The boat does not wear out through use, but it does become less desirable for resale as it becomes older. (Leave no cells blank – be certain to enter “0” wherever required.) |
| 1. | Assuming that the salmon fishing trip Steve has just completed is typical, what costs are relevant to a decision as to whether he should go on another trip this year? |
| Total relevant cost | $ by | $ [removed] |
| b. | Should the special order be accepted at this price? | ||||
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| Banner Company produces three products: A, B, and C. The selling price, variable costs, and contribution margin for one unit of each product follow: |
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| A | B | C | |||||||||
| Selling price | $ | 90 | $ | 190 | $ | 110 | |||||
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| Variable costs: | |||||||||||
| Direct materials | 40.50 | 150.70 | 62.60 | ||||||||
| Direct labor | 15.00 | 9.00 | 12.00 | ||||||||
| Variable manufacturing overhead | 3.00 | 1.80 | 2.40 | ||||||||
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| Total variable cost | 58.50 | 161.50 | 77.00 | ||||||||
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| Contribution margin | $ | 31.50 | $ | 28.50 | $ | 33.00 | |||||
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| Contribution margin ratio | 35 | % | 15 | % | 30 | % | |||||
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| Due to a strike in the plant of one of its competitors, demand for the company’s products far exceeds its capacity to produce. Management is trying to determine which product(s) to concentrate on next week in filling its backlog of orders. The direct labor rate is $6 per hour, and only 3,040 hours of labor time are available each week. |
| 1. | Compute the amount of contribution margin that will be obtained per hour of labor time spent on each product. (Round your intermediate calculations and final answers to 2 decimal places.) |
| A | B | C | |
| Contribution margin per labor hour | $ [removed] | $ [removed] | $ [removed] |
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| 2. | Which orders would you recommend that the company work on next week—the orders for product A, product B, or product C? | ||||||
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| 3. | By paying overtime wages, more than 3,040 hours of direct labor time can be made available next week. Up to how much should the company be willing to pay per hour in overtime wages as long as there is unfilled demand for the three products? (Round your intermediate calculations and final answers to 2 decimal places.) |
| Maximum amount | $ [removed] per hour |
