Question 12-18 please!! Making Chapter 12 Relevant Costs for Decision directly t

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Question 12-18 please!! Making Chapter 12 Relevant Costs for Decision directly to printer would have to add equipment and personnel with an annual Incremental variable costs would be so.10 per kilogram. Required hould Fraser cut its own paper or continue to sell to wholesalers? If Fr fixed cost of s650 Dit aser bypassed the wholesalers and cut its own paper for sale of $65 EXERCISE 12-18 Dropping a Product Line ILO2) or $30 A firm makes two products: frying pans and saucepans. Frying pans sell for s2 cost of making saucepans is $8. The firm has additional manufacturing costs and the ar Required variable of $1 llion 1. If the firm sells 100 more saucepans, what is the additional profit to the firmz 2 If the firm could sell either one more saucepan or one more frying pan, wh rm? pr would the firm prefer to sell? Why? product mi 3. Under what conditions would the firm want to drop frying pans from the EXERCISE 12-19 Make or Buy ILO2 Electric Scooter Co. makes motorized scooters for city commuters. The scoot ers can be char using a regular household plug, and the batteries hold their charge for 24 hours turing plant is currently operating at 70% capacity. The plant manager is consid s. The manufa facturing headlights for the scooters, which are currently being produced by an company and purchased by Electric Scooter for $11 each. Electric Scooter has the equipment outile

Explanation / Answer

Selling price per frying pan = $30

Variable cost per frying pan = $20

Contribution margin per frying pan = Selling price per frying pan - Variable cost per frying pan

= 30 - 20

= $10

Selling price per saucepan = $20

Variable cost per saucepan = $8

Contribution margin per saucepan = Selling price per saucepan - Variable cost per saucepan

= 20 - 8

= $12

(1)

If 100 more saucepans are sold, additional profit to the firm would be = 100 x 12

= $1,200

(2)

If an additional frying pan or saucepan could be sold, it is beneficial to sell saucepan since contribution margin is higher in case of saucepan in comparison to frying pan.

(3)

A product can be dropped from the product line when contribution margin of the product becomes negative or its variable cost becomes more than its selling price. Hence, frying pans would be dropped from the product mix when selling price of the frying pan becomes less than its variable cost. As long as selling price of frying pan is more than variable cost, it would be produced.

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