Accounting Business Reporting for Decision Making

CHAPTER 10 Cost–volume–profit analysis 453

Required

a. Calculate the contribution margin per beater for normal sales.

b. Calculate the contribution margin per beater for the special order.

c. What is the minimum selling price for the special order?

d. Should Cisco Pty Ltd accept the special order? Explain your answer and show calculations.

10.37  LO9

Acorn Ltd has been manufacturing its own shades for its camping chairs. The company is currently

operating at 100 per cent capacity. Variable manufacturing overhead is charged to production at the

rate of 50 per cent of direct labour cost. The direct materials and direct labour cost per unit to make

the chair shades are $4 and $6, respectively. Normal production is 50 000 chair shades per year.

A supplier has offered to make the shades at a price of $13.60 per unit. If Acorn Ltd accepts

the supplier’s offer, all variable manufacturing costs will be avoided, but $40 000 of fixed

manufacturing overhead currently being charged to the chair shades will be unavoidable.

Required

a. Should Acorn Ltd accept the supplier’s offer to supply the chair shades?

b. Would your answer to (a) be different if the productive capacity released by not making the

chair shades could be used to produce profit of $35 000?

10.38  LO7

Stafford Ltd has recently expanded its production facility to satisfy a new customer order that

will start in six months. As a consequence, they will have the opportunity to make use of the

spare capacity for the next six months. Financial information on the current products sold by

Stafford Ltd is as follows.

Budget Standard Superior

Selling price $40 $45 $60

Direct material 10 12 12

Direct labour ($10 per hour) 5 10 15

Variable overhead (allocated based on labour hours) 4 8 12

Fixed overhead (allocated based on machine hours) 4 8 8

Required

a. For the next six months, the new production facility has no constraints from either a labour

or machine hour perspective. Which product or mix of products should Stafford Ltd produce

using this capacity?

b. Assess whether your answer to (a) would be different if there was a constraint in relation to

the labour hours available.

10.39  LO2, 5

Advantage Tennis Coaching (ATC) has been engaged to provide tennis coaching services to

students at a local private girls’ college. ATC has put forward a proposal to the University of

Queensland’s School of Human Movement (SHM) to offer students work experience. ATC

qualified coaches will plan the coaching program, supervise the SHM students as they implement

the training program and attend the Queensland Girls’ Secondary Schools Sports Association

competition matches. Following is financial data relating to the proposal.

Revenue:

Season tennis coaching fees per player

(payable by College and reimbursed by parents)

Season costs (variable per player):

Sports drinks

ATC logo embossed on school kitbag

Season fixed costs — supervision by ATC coaches

$100

20

$ 200

120

$6 400