The Lumber Division of Coronado Industries produces and sells lumber that can be

Question

The Lumber Division of Coronado Industries produces and sells lumber that can be sold to outside customers or within the company to the Construction Division. The following data have been gathered for the coming period: Lumber Division: 260000 board feet $4.50 Capacity Price per board foot Variable production cost per bd. ft. $1.25 Variable selling cost per bd. ft. $0.50 Construction Division: 65000 Board feet needed Outside price paid per bd. ft.$3 If the Lumber Division sells to the Construction Division, $0.45 per board foot can be saved in shipping costs. If the Lumber Division has sufficient excess capacity to fulfill the Construction Division's needs, what will be the effect on the company's overall contribution margin? Increase by $39000 Decrease by $32500 Decrease by $149500 Increase by $110500

Explanation / Answer

Question 1

Board feet needed = 65,000

If there is sufficient capacity, there is not opportunity cost involved. Hence the Contribution margin on the interal sale would be:

($3 - 1.25 - 0.05) X 65000 = $110,500

Note: $0.45 of cost would be saved in internal sales. Hence only $0.05 of selling costs has been dedcuted.

Question 2

Sales = $260,000

Profit = $28,000

Target Cost = Sales - Profit = (260,000 - 28,000) = 232,000

Target cost per unit = 232,000/70,000 = $33.14

Question 3

Cost of parts = $140

Budget Overhead/Labor hour = 380,000/5,000 = 76

Cost for 2 hours = 2 X 76 = $152

Total Cost = 140 + 152 = $292

Material Loading Charges = 40% X 140 = $56

Profit Margin Required for 2 hours = $30 X 2 = $60

Total Invoice Value = 292 + 56 + 60 = $408

Question 4

Total Consultant Cost =( 80000 + 12500 + 7500 ) = 100,000

Cost per hour = 100,000/5,000 = $20

Cost of Consultants for Project = 20 X 20 = $400

Cost of Materials = $180

Cost of Suplier Clerk salaries Allocated = 39500 X 180/158000 = $45

Margin on Consulting Hours = 20 X 20 hours = $400

Hence the Total Invoice Value = $400 + $400 + $180 +$27 + $45 = $1052

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