Ace Company manufactures two products called A and B that sell for $100 and $60

Question

Ace Company manufactures two products called A and B that sell for $100 and $60 respectively. Each product uses only one type of raw material that cost $S per pound. Ace has the capacity to annually produce 100,000 unitsof each product. The unit cost for each product at this level of capacity is given below: Ace considers its traceable fixed manufacturing overhead to be avoidable, but itscommon fixed expenses are deemed unavoidable and have been allocated to products based on sales dollars. Answer each question independently unless instructed otherwise. Use an excel format to answer each question. What is the contribution margin of each product? Assume that Ace uses the absorption method to compute product cost. What is the gross margin per unit of each product? What contribution margin per pound of raw material is earned by each product? What is the total traceable fixed overhead cost incurred by Ace Company? What is the total common fixed expense incurred by Ace Company? Assume that Ace expects to produce and sell 60,000 units of A during the current year. A supplier has offered to manufacture and deliver 75,000 units of A for a price of $68. If Ace accepts this offer instead of manufacturing those units how much will profits increase?/decrease? Assume that Ace expects to produce and sell 60,000 of product A during the current year. A supplier has offered to manufacture and deliver 60,000 units of A for a price of $80 each. If Ace accepts the offer how much will profits increase/decrease? Using the information in 7 above, assume the space used for producing product A can be used to produce a contribution margin of $50,000. If Ace chooses this action how much will profit increase?/decrease.

Explanation / Answer

1)              Product A B Selling price 100 60 Less : Variable cost Direct Material 25 10 Direct labor 15 10 Variable manufacturing OH 10 5 Variable selling expenses 10 6 Total variable cost 60 31 Contribution per unit 40 29 2) Product cost - absorption costing Direct Material 25 10 Direct labor 15 10 Variable manufacturing OH 10 5 Traceable fixed OH 15 10 Common Fixed overhead 15.63 49.375 Product cost 80.63 84.375 Selling price 100 60 Gross Margin ( selling price - product cost) 19.37 -24.375 3)              Product A B Direct Material (A) 25 10 Price per pound (B) 5 5 Direct material required C = A/B 5 2 Contribution per unit ( D) 40 29 Contribution per pound of raw materiaL D/C 8 14.5

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.