1 Compute contribution margins and contributionmargin ratios

1. Compute contribution margins and contribution-margin ratios for plain and professional saws. 2. The demand is for more units than the company can produce. There are only 40,000 machine hours of manufacturing capacity available. Four plain saws can be produced in the same a time (1 hour) needed to produce one professional saw. Compute the total contribution margin for 40,000 hours for plain saws only and for professional saws only. Which product is the best use of machine hours? 3. Use two or three sentences to state the major lesson of this problem. 6-A3 Joint Products: Sell or Process Further The Mussina Chemical Company produced three joint products at a joint cost of $117,000. These products were processed further and sold as follows: Sales $230,000 330,000 175,000 Additional Processing Costs $190,000 300,000 100,000 Chemical Product The company has had an opportunity to sell at split-off directly to other processors. If that alterna tive had been selected, sales would have been A, $54,000; B, $32.000; and C, $54,000, The company expects to operate at the same level of production and sales in the forthcoming year 1. Could the company increase operating income by altering its processing decisions? If so, what would be the expected overall operating income? 2. Which products should be processed further and which should be sold at split-of A4 Role of Old Equipment Replacement

Solution

Incremental Analysis: Product A Product B Product C Sales after further processing 230000 330000 175000 Less: Sales at Split off 54,000 32000 54000 Incremental revenue 176,000 298,000 121,000 Less: Incremental cost 190,000 300000 100000 Incremental Income/(Loss) -14,000 -2000 21000 Req 1: The compmany shall further process only Product C. It shall sell off Product A and B at split off point Net Income with the above decision Product A Product B Product C Total Sales at split off 54,000 32000 Sales after further processing 175000 261000 Less: Further processing cost 100000 100000 Incremental income 54000 32000 75000 161000 Less: Joint cost 117000 Net income 44000 Req 2: Decision of sale shall be as follows: Decision Product A Sell at Splitt off Product B Sell at Split of Product C Sell after further processing