Question

Answer 1

9	Calculation of Financial advantage or (disadvantage) of buying 92000 units of Alpha:-
Differential analysis
		Make 92000 units of Alpha		Buy 92000 units of Alpha		Differential Effect on Income (Buy)
		Calculation	Amount	Calculation	Amount
1	a	b	c	d	e	f=e-c
A	Direct materials	92000*36	$3,312,000		$0	-$3,312,000
B	Direct labor	92000*32	$2,944,000		$0	-$2,944,000
C	Variable manufacturing overhead	92000*19	$1,748,000		$0	-$1,748,000
D	Variable selling expenses	92000*24	$2,208,000		$0	-$2,208,000
E	Traceable fixed manufacturing overhead	118000*27	$3,186,000		$0	-$3,186,000
F	Common fixed expenses	118000*27	$3,186,000	118000*27	$3,186,000	$0
G	Purchase Costs			92000*128	$11,776,000	$11,776,000
H	Financial Advantage of buying Alpha (Decrease in cost)		$16,584,000		$14,962,000	-$1,622,000
	Financial Advantage of buying Alpha = $1622000
10	Calculation of Financial advantage or (disadvantage) of buying 62000 units of Alpha:-
Differential analysis
		Make 92000 units of Alpha		Buy 92000 units of Alpha		Differential Effect on Income (Buy)
		Calculation	Amount	Calculation	Amount
1	a	b	c	d	e	f=e-c
A	Direct materials	62000*36	$2,232,000		$0	-$2,232,000
B	Direct labor	62000*32	$1,984,000		$0	-$1,984,000
C	Variable manufacturing overhead	62000*19	$1,178,000		$0	-$1,178,000
D	Variable selling expenses	62000*24	$1,488,000		$0	-$1,488,000
E	Traceable fixed manufacturing overhead	118000*27	$3,186,000		$0	-$3,186,000
F	Common fixed expenses	118000*27	$3,186,000	118000*27	$3,186,000	$0
G	Purchase Costs			62000*128	$7,936,000	$7,936,000
H	Financial Advantage of buying Alpha (Decrease in cost)		$13,254,000		$11,122,000	-$2,132,000
	Financial Advantage of buying Alpha = $2132000
	Contribution margin per pound
Calculation of Revised Operating Income
		Alpha	Beta
a	Selling Price per unit	$180.00	$145.00
	Variable Cost per unit
b	Direct materials	$36.00	$24.00
c	Direct labor	$32.00	$27.00
d	Variable manufacturing overhead	$19.00	$17.00
e	Variable selling expenses	$24.00	$20.00
f	Total Variable Cost per unit	$111.00	$88.00
g	Contribution per unit (a-f)	$69.00	$57.00
h	Direct materials cost per pound	$6.00	$6.00
i	Direct materials Pounds per unit (b/h)	6.00	4.00
j	Contribution per pound (g/i)	11.50	14.25

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