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E4-24.  Sell or Process Further

Port Allen Chemical Company processes raw material D into joint products E and F. Raw material D costs $12 per liter. It costs $100 to convert 100 liters of D into 60 liters of E and 40 liters of F. Product F can be sold immediately for $12 per liter or processed further into Product G at an additional cost of $10 per liter. Product G can then be sold for $26 per liter.


Determine whether Product F should be sold or processed further into Product G.

E4-25 Limited Resources

Assume Fender produces only three guitars: the Stratocaster, Dreadnought and Telecaster. A limitation of 720 labor hours per week prevents Fender from meeting the sales demand for these products. Product 

information is as follows: (THE CHART IS ATTACHED TO THIS QUESTION)


a.  Determine the weekly contribution from each product when total labor hours are allocated to the product with the highest

1.  Unit selling price.

2.  Unit contribution margin.

3.  Contribution per labor hour.

(Hint: Each situation is independent of the others.)

b.  What generalization can be made regarding the allocation of limited resources to achieve short-run profit maximization?

c.  Determine the opportunity cost the company will incur if management requires the weekly production of 20 Telecasters.

d.  Give reasons why a company may not allocate resources in the most economical way in some situations.

E4-26 —- For E4-26, here is an important hint. Because your constraint, your limited resource, is hours, you want to find the contribution margin per hour for each product. That will enable you to answer the various parts of the question.

Limited Resources

Maria Pajet, a regional sales representative for UniTec Systems Inc. has been working about 80 hours per week calling on a total of 123 regular customers each month. Because of family and health considerations, she has decided to reduce her hours to a maximum of 160 per month. Unfortunately, this cutback will require Maria to turn away some of her regular customers or, at least, serve them less frequently than once a month. Maria has developed the following information to assist her in determining how to best allocate time. (THE CHART IS ATTACHED TO THIS QUESTION)


a.  Develop a monthly plan that indicates the number of customers Maria should call on in each classification to maximize her monthly sales commissions.

b.  Determine the monthly commissions Maria will earn if she implements this plan.

c.  Give one or two reasons why Maria might decide not to follow the conclusions of the above analysis entirely.

E9-23. Activity-Based Budget

Highlands Industries has the following budget information available for February:(THE CHART IS ATTACHED TO THIS QUESTION)


a.  Use activity based costing to prepare a manufacturing cost budget for February. Clearly distinguish between unit, batch, and facility-level costs.

b.  The operating managers at Highland Industries are concerned that the budgeting process is too time consuming and diverts attention from their current day-to-day responsibilities. Discuss the reasons that Highland should continue budgeting.

E-9 27 Cash Budget & Short-Term Financing

Presented are partial October, November, and December cash budgets for Holiday Events: (THE CHART IS ATTACHED TO THIS QUESTION)

Loans are obtained in increments of $1,000 at the start of each month to maintain a minimum end-of-month balance of $12,000. Interest is one percent simple interest (no compounding) per month, payable when the loan is repaid. Repayments are made as soon as possible, subject to the minimum end-of-month balance.


Complete the short-term financing section of the cash budget

E9-28 Purchases and Cash Budgets

On July 1, MTC Wholesalers had a cash balance of $175,000 and accounts payable of $99,000. Actual sales for May and June, and budgeted sales for July, August, September, and October are: (THE CHART IS ATTACHED TO THIS QUESTION)

All sales are on credit with 75 percent collected during the month of sale, 20 percent collected during the next month, and 5 percent collected during the second month following the month of sale. Cost of goods sold averages 70 percent of sales revenue. Ending inventory is one-half of the next month’s predicted cost of sales. The other half of the merchandise is acquired during the month of sale. All purchases are paid for in the month after purchase. Operating costs are estimated at $28,000 each month and are paid during the month incurred.


Prepare purchases and cash budgets for July, August, and September