管理会计（高等教育出版社）于增彪（清华大学）改编余绪缨（厦门大学）审校CHAPTER 17 TACTICAL DECISION MAKING QUESTIONS FOR WRITING AND DISCUSSION1. A tactical decision is short-run in nature; itinvolves choosing among alternatives with an immediate or limited end in view. A stra-tegic decision involves selecting strategies that yield a long-term competitive advantage.2.Depreciation is an allocation of a sunk cost.This cost is a past cost and will never differ across alternatives.3.The salary of a supervisor in an accept orreject decision is an example of an irrelevant future cost.4.If one alternative is to be judged superior toanother alternative on the basis of cash-flow comparisons, then cash flows must be ex-pressed as an annual amount (or periodic amount); otherwise, consideration must be given to the time value of the nonperiodic cash flows.5.Disagree. Qualitative factors also have animportant bearing on the decision and may, at times, overrule the quantitative evidence from a relevant costing analysis.6.The purchase of equipment needed to pro-duce a special order is an example of a fixed cost that is relevant.7.Relevant costs are those costs that differacross alternatives. Differential costs are the differences between the costs of two alterna-tives.8.Depreciation is a relevant cost whenever it isa future cost that differs across alternatives.Thus, it must involve a capital asset not yetacquired.9.Past costs can be used as information tohelp predict future costs.10.Yes. Suppose, for example, that sufficientmaterials are on hand for producing a partfor two years. After two years, the part will bereplaced by a newly engineered part. If thereis no alternative use of the materials, thenthe cost of the materials is a sunk cost andnot relevant in a make-or-buy decision.plementary effects may make it moreexpensive to drop a product.12. A manager can identify alternatives by usinghis or her own knowledge and experienceand by obtaining input from others who arefamiliar with the problem.13.No. Joint costs are irrelevant. They occurregardless of whether the product is sold atthe split-off point or processed further.14.Yes. The incremental revenue is $1,400, andthe incremental cost is only $1,000, creatinga net benefit of $400.15.Regardless of how many units are produced,fixed costs remain the same. Thus, fixedcosts do not change as product mixchanges.16.No. If a scarce resource is used in producingthe two products, then the product providingthe greatest contribution per unit of scarceresource should be selected. For more thanone scarce resource, linear programmingmay be used to select the optimal mix.17.If a firm is operating below capacity, then aprice that is above variable costs will in-crease profits.18.Different prices can be quoted to customersin markets not normally served, to noncom-peting customers, and in a competitive bid-ding setting.19.Linear programming is used to select theoptimal product mix whenever there are mul-tiple constrained scarce resources.20.An objective function is the function that is tobe maximized (or minimized) subject to a setof constraints. A constraint is simply a func-tion that restricts the possible values of va-riables appearing in the objective function.Usually, a constraint is concerned with ascarce resource. A constraint set is the col-lection of all constraints for a given problem.21. A feasible solution is a solution to a linearprogramming problem that satisfies theprob lem’s constraints. The feasible set ofsolutions is the collection of all feasible solu-tions.22.To solve a linear programming problemgraphically, use the following four steps: (1) graph each constraint, (2) identify the feasi-ble set of solutions, (3) identify all corner points in the feasible set, and (4) select the corner point that yields the optimal value for the objective function. Typically, when a li-near programming problem has more than two or three products, the simplex method must be used.EXERCISES17–1The correct order is: D, E, B, F, C, A.17–2Steps in A ustin’s decision:Step 1: Define the problem. The problem is whether to continue studying at his present university, or to study at a university with a nationally recog-nized engineering program.Step 2: Identify the alternatives. Events A and B. (Students may want to include event I—possible study for a graduate degree. However, future eventsindicate that Austin still defined his problem as in Step 1 above.)Step 3: Identify costs and benefits associated with each feasible alternative.Events C, E, F, and I. (Students may also list E and F in Step 5—they areincluded here because they may help Austin estimate future incomebenefits.)Step 4: Total relevant costs and benefits for each feasible alternative. No specif-ic event is listed for this step, although we can intuit that it was done,and that three schools were selected as feasible since event J mentionsthat two of three applications met with success.Step 5: Assess qualitative factors. Events D, E, F, G, and H.Step 6: Make the decision. Event J is certainly relevant to this. (What did Austin ultimately decide? The author doesn’t know—at the time this text waspublished, Austin was still deciding. We certainly wish him luck!)1. The two alternatives are to make the component in house or to buy it fromCouples.2. Alternatives DifferentialMake Buy Cost to Make Direct materials $ 5.00 —$ 5.00 Direct labor 2.38 — 2.38 Variable overhead 1.90 — 1.90 Purchase cost —$11.00 (11.00) Total relevant cost $ 9.28 $11.00 $ (1.72) Pierre should make the component in house because it will save $9,116 ($1.72 5,300) over purchasing it from Couples.17–41. If Product C is dropped, profit will decrease by $15,000 since the avoidabledirect fixed costs are only $45,000 ($70,000 – $25,000). Depreciation is not re-levant.2. A new income statement, assuming that C is dropped and demand for B de-creases by 10 percent, is given below (amounts are in thousands).A B TotalSales revenue $800 $1,755 $2,555Less: Variable expenses 350 900 1,250Contribution margin $450 $ 855 $1,305Less: Direct fixed expenses 150 300 450Segment margin $300 $ 555 $ 855Less: Common fixed expenses 340 Operating income $ 515 Operating income will decrease by $85,000 ($600,000 – $515,000).1. Relevant manufacturing costs are $6.90 per unit ($2.00 + $3.10 + $1.80), so thegross profit per unit from the special order is $0.60 ($7.50 –$6.90). The in-crease in gross profit is $2,280 (3,800 $0.60).2. Again, the relevant manufacturing costs are $6.90 per unit. The increase ingross profit is $2,280, from which the $1,000 of packing capacity must be subtracted. The overall effect is to increase profit by $1,280 if the special or-der is accepted.17–61. The amounts Heather has spent on purchasing and improving the Grand Amare irrelevant because these are sunk costs.2. AlternativesRestore Grand Am Buy Neon Transmission $2,000Water pump 400Master cylinder 1,100Sell Grand Am —$(6,400)Cost of new car —9,400 Total $3,500 $ 3,000 Heather should sell the Grand Am and buy the Neon because it provides a net savings of $500.Note: Heather should consider the qualitative factors. If she restored the Grand Am, how much longer would it last? What about increased license fees and insurance on the newer car? Could she remove the stereo and put it in the Neon without decreasing the Grand Am’s resale value by much?1. Make BuyDirect materials $360,000 —Direct labor 120,000 —Variable overhead 100,000 —Fixed overhead 88,000 —Purchase cost —$640,000 ($16 ⨯ 40,000) Total relevant costs $668,000 $640,000Sherwood should purchase the part.2. Maximum price = $668,000/40,000 = $16.70 per unit3. Income would increase by $28,000 ($668,000 – $640,000).17–81. Make BuyDirect materials $360,000 —Direct labor 120,000 —Variable overhead 100,000 —Purchase cost —$640,000 ($16 ⨯ 40,000) Total relevant costs $580,000 $640,000Sherwood should continue manufacturing the part.2. Maximum price = $580,000/40,000 = $14.50 per unit3. Income would decrease by $60,000 ($640,000 – $580,000).1. Make BuyDirect materials $30.00 —Direct labor 26.60 —Variable overhead 6.40 —Purchase cost —$65Total relevant costs $63.00 $65 Income would decrease by $180,000 [($65 – $63) ⨯ 90,000].2. Make BuyVar. manu. costs (90,000 ⨯ $63) $ 5,670,000 —Materials handling (3,000 ⨯ $25) 75,000 —Purchasing (4,000 ⨯ $17) 68,000 —Setups (800 ⨯ $200) 160,000 —Engineering (1,000 ⨯ $90) 90,000 —Maintenance (7,000 ⨯ $4) 28,000 —Purchase cost (90,000 ⨯ $65) —$5,850,000 Total relevant costs $ 6,091,000 $5,850,000 Income would increase by $241,000 ($6,091,000 – $5,850,000).1. Product B TotalSales $ 100,000 $ 250,000 $ 350,000 Less: Variable expenses 50,000 145,000 195,000 Contribution margin $ 50,000 $ 105,000 $ 155,000 Less: Direct fixed expenses* 60,000 60,000 120,000 Segment margin $ (10,000) $ 45,000 $ 35,000 Less: Common fixed expenses 70,000 Operating (loss) $ (35,000) *Product A: $100,000/$350,000 ⨯ $70,000 = $20,000;$80,000 – $20,000 = $60,000Product B: $250,000/$350,000 ⨯ $70,000 = $50,000;$110,000 – $50,000 = $60,0002. Alternatives:Keep Drop Drop A/ Drop B/Both Both Keep B Keep A Sales $ 350,000 —$ 312,500 $ 150,000 Less: Variable expenses 195,000 —181,250 75,000 Contribution margin $ 155,000 —$ 131,250 $ 75,000 Less: Direct fixed expenses 120,000 —60,000 60,000 Segment margin $ 35,000 —$ 71,250 $ 15,000 Less: Common fixed expenses 70,000 $ 70,000 70,000 70,000 Operating income (loss) $ (35,000) $ (70,000) $ 1,250 $ (55,000) Gutierrez should drop Product A unless the common fixed expenses can be avoided if both products are dropped.1. The company should not accept the offer because the additional revenue isless than the additional costs (assuming fixed overhead is allocated and will not increase with the special order):Incremental revenue per calendar $4.20Incremental cost per calendar 4.25Loss per calendar $0.05Total loss: $0.05 ⨯ 5,000 = $2502. Costs associated with the layoff:Increase state UI premiums (0.01 ⨯ $1,460,000) $14,600Notification costs ($25 ⨯ 20) 500Rehiring and retraining costs ($150 ⨯ 20) 3,000 Total $18,100 The order should be accepted. The loss of $250 on the order is more than off-set by the $18,100 saved by not laying off employees.17–121. Sales $ 293,000Costs 264,000Operating profit $ 29,0002. Sell Process Further DifferenceRevenues $40,000 $73,700 $33,700 Further processing cost 0 23,900 23,900 Operating income $49,800 $ 9,800 The company should process Delta further, because operating profit would increase by $9,800 if it were processed further. (Note: Joint costs are irrele-vant to this decision, because the company will incur them whether or not Delta is processed further.)17–131. ($30 ⨯ 2,000) + ($60 ⨯ 4,000) = $300,0002. HeraContribution margin $30 $60÷ Pounds of material ÷2 ÷5Contribution margin/pound $15 $12Norton should make as much of Juno as can be sold, then make Hera.2,000 units of Juno ⨯ 2 = 4,000 pounds16,000 pounds – 4,000 pounds = 12,000 pounds for HeraHera production = 12,000/5 = 2,400 unitsProduct mix is 2,000 Juno and 2,400 Hera.Total contribution margin = (2,000 ⨯ $30) + (2,400 ⨯ $60)= $204,00017–141. Let X = Number of Product A producedLet Y = Number of Product B producedMaximize Z = $30X + $60Y (objective function)2X + 5Y ≤ 6,000 (direct material constraint)3X + 2Y ≤ 6,000 (direct labor constraint)X ≤ 1,000Y ≤ 2,000X ≥ 0Y ≥ 017–14 Concluded2.AX0 1,000 2,000 3,000Solution: The corner points are the origin, the points where X = 0, Y = 0, and where two linear constraints intersect. The point of intersection of the two li-near constraints is obtained by solving the two equations simultaneously.A 0 0 $ 0B 1,000 0 30,000C 1,000 800 78,000*D 0 1,200 72,000*The values for X and Y are found by solving the simultaneous equations:X = 1,0002X + 5Y = 6,0002(1,000) + 5Y = 6,000Y = 800Z = $30(1,000) + $60(800) = $78,000Optimal solution: X = 1,000 units and Y = 800 units3. At the optimal level, the contribution margin is $78,000.AlternativesRelevant Item Keep Buy Revenues $ 10,000,000 $12,000,000Note savings 0 16,500 Operating costs (63,000) (50,000) Maintenance (8,500) (4,000) Net recurring benefit $ 9,928,500 $11,962,500One-time cash outflow —$(540,000)The relevant items include both recurring and nonrecurring items. The decision to keep or buy must include the opportunity cost of the one-time outlay of $540,000. Since the opportunity cost is likely to be much less than the difference between the recurring benefits, the buy alternative appears to be superior. While net present value analysis is the best framework for this problem, it is useful to identify relevant items.17–161. Process Differential AmountSell Further to Process Further Revenues $24,000 $42,000 $18,000Processing cost —(7,150) (7,150) Total $34,850 $10,850 Pyrol should be processed further as it will increase profit by $10,850 for every 1,000 liters.2. Process Differential AmountSell Further to Process Further Revenues $24,000 $42,000 $ 18,000Processing cost —(7,150) (7,150)Distribution cost —(800) (800)Commissions —(4,200) (4,200) Total $29,850 $ 5,850 Pyrol should be processed further as it will increase profit by $5,850 for every 1,000 liters. Note that the liability issue was not quantified, so that it would need to be considered as a qualitative factor—possibly reducing the attrac-tiveness of making pyrolase.1. Model M-3Contribution margin $24 $ 15÷ Hours on lathe ÷ 6 ÷ 3Contribution margin/hours on lathe $ 4 $ 5Model M-3 has the higher contribution margin per hour of drilling machine use, so all 12,000 hours should be spent producing it. If that is done, 4,000 (12,000 hours/3 hours per unit) units of Model M-3 should be produced. Zero units of Model A-4 should be produced.2. If only 2,500 units of Model M-3 can be sold, then 2,500 units should be pro-duced. This will take 7,500 hours of drilling machine time. The remaining 4,500 hours should be spent producing 750 (4,500/6) units of Model A-4.17–181. Model 14-DContribution margin $ 12 $ 10÷ Hours on lathe ÷ 4 ÷ 2Contribution margin/hours on lathe $ 3 $ 5Model 33-P has the higher contribution margin per hour of lathe use, so all 12,000 hours should be spent producing it. If that is done, 6,000 (12,000 hours/2 hours per unit) units of Model 33-P should be produced. Zero units of Model 14-D should be produced.2. If only 5,000 units of Model 33-P can be sold, then 5,000 units should be pro-duced. This will take 10,000 hours of lathe time. The remaining 2,000 hours should be spent producing 500 (2,000/4) units of Model 14-D.17–191. Let X = Number of Model 14-D producedLet Y = Number of Model 33-P producedMaximize Z = $12X + $10Y (objective function)4X + 2Y ≤ 12,000 (lathe constraint)X ≤ 2,000 (demand constraint)Y ≤ 5,000 (demand constraint)X ≥ 0Y ≥ 02.X0 1,000 2,000 3,000 4,000 5,000Solution: The corner points are points A, B, C, D, and E. The point of intersec-tion of the linear constraints is obtained by solving the two equations simul-taneously.Corner Point X-Value Y-Value Z = $12X + $10YA 0 0 $ 0B 0 5,000 50,000C 500 5,000 56,000D 2,000 2,000 44,000E 2,000 0 24,000*The intersection values for X and Y can be found by solving the simultane-ous equations:Corner Point C:Y = 5,0004X + 2Y = 12,0004X + 2(5,000) = 12,0004X = 2,000X = 500Z = $12(500) + $10(5,000) = $56,000Corner Point D:X = 2,0004X + 2Y = 12,0004(2,000) + 2Y = 12,0002Y = 4,000Y = 2,000Z = $12(2,000) + $10(2,000) = $44,000Optimal solution is Point C, where X = 500 units and Y = 5,000 units.3. At the optimal level, the contribution margin is $56,000.17–201. COGS + Markup(COGS) = Sales$144,300 + Markup($144,300) = $206,349Markup($144,300) = $206,349 – $144,300Markup = $62,049/$144,300Markup = 0.43, or 43%2. Direct materials $ 800Direct labor 1,600Overhead 3,200Total cost $ 5,600Add: Markup 2,408Initial bid $ 8,00817–211. Standard DeluxePrice $ 9.00 $30.00 $35.00 Variable cost 6.00 20.00 10.00 Contribution margin $ 3.00 $10.00 $25.00 ÷ Machine hours ÷0.10 ÷0.50 ÷0.75 Contribution margin/MHr. $30.00 $20.00 $33.33 The company should sell only the deluxe unit with contribution margin per machine hour of $33.33. Sealing can produce 20,000 (15,000/0.75) deluxe units per year. These 20,000 units, multiplied by the $25 contribution margin per unit, would yield total contribution margin of $500,000.2. Produce and sell 12,000 deluxe units, which would use 9,000 machine hours.Then, produce and sell 50,000 basic units, which would use 5,000 machine hours. Then produce and sell 2,000 standard units, which would use the re-maining 1,000 machine hours.Total contribution margin = ($25 ⨯ 12,000) + ($3 ⨯ 50,000) + ($10 ⨯ 2,000)= $470,00017–221. d2. a3. d4. c5. b6. bPROBLEMS17–231. Costs for Two YearsSite 1 Site 2 Site 3 Rent $11,400 $12,000 —Partitions 2,040 1,500 —Renovation ——$15,000 Total $13,440 $13,500 $15,000Costs for Three YearsSite 1 Site 2 Site 3 Rent $17,100 $18,000 —Partitions 3,060 1,500 —Renovation ——$15,000 Total $20,160 $19,500 $15,000 Yes, it matters. If the center exists for two years, then Site 1 is least expen-sive. If the center exists for three years, Site 3 is least expensive.2. MEMORANDUMTO: Alice KnappFROM: Site ConsultantRE: New Location for the CenterThree sites are under serious consideration for the center’s location. Quant i-tatively, the sites are ranked as follows:Two Years Three YearsSite 1 = $13,440 Site 3 = $15,000Site 2 = $13,500 Site 2 = $19,500Site 3 = $15,000 Site 1 = $20,160 Clearly, it is important for you to determine whether the Center will continue to serve the people of Newkirk for two more years or for three more years.17–23 ConcludedQualitative factors are also important and are discussed for each site in turn.Site 1: The location of this site is a good one for the center because it is cen-trally located and will be convenient for clients. Neighbors include an attor-ney, two insurance agencies, and a bail bond agency. These businesses can be expected to accept the Drug Counseling Center readily. However, the space is somewhat smaller than the other sites, and total privacy for client and counselor cannot be ensured.Site 2: This site is convenient to ca seworkers’ homes. However, it is som e-what less convenient for clients. Additionally, some stores in the mall may resent the location of a drug counseling center and fight to block your mov-ing in. While you would no doubt eventually win any legal battles, the poten-tial legal action would require time and money. The space provided by Site 2 is ideal for the center’s purposes. Client privacy would be ensured. Private o f-fice space exists for administrative needs.Site 3: Considerably more space is provided by Site 3 than by the other sites.Currently, however, it is virtually unusable. It will take time to complete the renovation. During that time period, the center may have to cancel client ap-pointments and/or operate out of temporary quarters (e.g., the courthouse).17–241. Make BuyDirect materials$218,000 —Direct labor b70,200 —Variable overhead c20,800 —Fixed overhead d58,000 —Purchase cost e—$340,000Total $367,000 $340,000a($70 ⨯ 2,000) + ($130 ⨯ 600)b$27 ⨯ 2,600c$8 ⨯ 2,600d$26,000 + $32,000e($125 ⨯ 2,000) + ($150 ⨯ 600)Net savings by purchasing: $27,000. Hetrick should purchase the crowns ra-ther than make them.2. Qualitative factors that Hetrick should consider include quality of crowns, re-liability and promptness of producer, and reduction of workforce.3. It reduces the cost of making the crowns to $335,000, which is less than thecost of buying.4. Make BuyDirect materials $316,000 —Direct labor 108,000 —Variable overhead 32,000 —Fixed overhead 58,000 —Purchase cost —$515,000Total $514,000 $515,000Hetrick should produce its own crowns if demand increases to this level be-cause the fixed overhead is spread over more units.17–251. @ 600 lbs. Process Further Sell DifferenceR evenues a$24,000 $7,200 $16,800B ags b—(39) 39S hipping c(384) (60) (324)G rinding d(1,500) —(1,500)B ottles e(2,400) —(2,400)Total $19,716 $7,101 $12,615 a600 ⨯ 10 ⨯ $4 = $24,000; $12 ⨯ 600b$1.30 ⨯ (600/20)c[(10 ⨯ 600)/25] ⨯ $1.60 = $384; $0.10 ⨯ 600 = $60d$2.50 ⨯ 600e10 ⨯ 600 ⨯ $0.40Zanda should process depryl further.2. $12,615/600 = $21.025 additional income per pound$21.025 ⨯ 265,000 = $5,571,62517–261. System B Headset TotalSales $45,000 $ 32,500 $8,000 $ 85,500 Less: Variable expenses 20,000 25,500 3,200 48,700 Contribution margin $25,000 $ 7,000 $4,800 $ 36,800 Less: Direct fixed costs* 526 11,158 1,016 12,700 Segment margin (loss) $24,474 $ (4,158) $3,784 $ 24,100 Less: Common fixed costs 18,000 Operating income $ 6,100 *$45,000/$85,500 ⨯ $18,000 = $9,474; $10,000 – $9,474 = $526$32,500/$85,500 ⨯ $18,000 = $6,842; $18,000 – $6,842 = $11,158$8,000/$85,500 ⨯ $18,000 = $1,684; $2,700 – $1,684 = $1,01617–26 Concluded2. Headset TotalSales $58,500 $6,000 $64,500Less: Variable expenses 26,000 2,400 28,400Contribution margin $32,500 $3,600 $36,100Less: Direct fixed costs 526 1,016 1,542Segment margin $31,974 $2,584 $34,558Less: Common fixed costs 18,000 Operating income $16,558 System B should be dropped.3. System C Headset TotalSales $45,000 $ 26,000 $7,200 $78,200 Less: Variable expenses 20,000 13,000 2,880 35,880 Contribution margin $25,000 $ 13,000 $4,320 $42,320 Less: Direct fixed costs 526 11,158 1,016 12,700 Segment margin $24,474 $ 1,842 $3,304 $29,620 Less: Common fixed costs 18,000 Operating income $11,620 Replacing B with C is better than keeping B, but not as good as dropping B without replacement with C.1. Steve should consider selling the part for $1.85 because his division’s profitswould increase by $12,800:Reject Revenues (2 ⨯ $1.85 ⨯ 8,000) $29,600 $0Variable expenses 16,800 0 Total $12,800 $0 Pat’s div isional profits would increase by $18,400:Accept Reject Revenues ($32 ⨯ 8,000) $ 256,000 $0Variable expenses:Direct materials ($17 ⨯ 8,000) (136,000) 0Direct labor ($7 ⨯ 8,000) (56,000) 0Variable overhead ($2 ⨯ 8,000) (16,000) 0Component (2 ⨯ $1.85 ⨯ 8,000) (29,600) 0 Total relevant benefits $ 18,400 $02. Pat should accept the $2 price. This price will increase the cost of the com-ponent from $29,600 to $32,000 (2 ⨯ $2 ⨯ 8,000) and yield an incremental ben-efit of $16,000 ($18,400 – $2,400).Steve’s division will see an increase in profit of $15,200 (8,000 units ⨯ 2 com-ponents per unit ⨯ $0.95 contribution margin per component).3. Yes. At full price, the total cost of the component is $36,800 (2 ⨯$2.30 ⨯8,000), an increase of $7,200 over the original offer. This still leaves an in-crease in profits of $11,200 ($18,400 –$7,200). (See the answer to Require-ment 1.)1. Sales a$ 3,751,500Less: Variable expenses b2,004,900Contribution margin $ 1,746,600Less: Direct fixed expenses c1,518,250Divisional margin $ 228,350Less: Common fixed expenses c299,250Operating (loss) $ (70,900)a Based on sales of 41,000 unitsLet X = Units sold$83X/2 + $100X/2 = $3,751,500$183X = $7,503,000X = 41,000 unitsb$83/1.25 = $66.40 Manufacturing cost20.00 Fixed overhead$46.40 Per internal unit variable cost5.00 Selling$51.40 Per external unit variable costVariable costs = ($46.40 ⨯ 20,500) + ($51.40 ⨯ 20,500)= $2,004,900c Fixed selling and admin: $1,100,000 – $5(20,500) = $997,500Direct fixed selling and admin: 0.7 ⨯ $997,500 = $698,250Direct fixed overhead: $20 ⨯ 41,000 = $820,000Total direct fixed expenses = $698,250 + $820,000 = $1,518,250Common fixed expenses = 0.3 ⨯ $997,500 = $299,2502. Keep DropSales $ 3,751,500 $ —Variable costs (2,004,900) (2,050,000)*Direct fixed expenses (1,518,250) —Annuity —100,000 Total $ 228,350 $(1,950,000) *$100 ⨯ 20,500 (The units transferred internally must be purchased external-ly.)The company should keep the division.1. Napkins: CM/machine hour = ($2.50 – $1.50)/1 = $1.00Tissues: CM/machine hour = ($3.00 – $2.25)/0.5 = $1.50Tissues provide the greatest contribution per machine hour, so the company should produce 400,000 packages of tissues (200,000 machine hours times 2 packages per hour) and zero napkins.2. Let X = Boxes of napkins; Y = Boxes of tissuesa. Z = $1.00X + $0.75Y (objective function)X+ 0.5Y ≤ 200,000 (machine constraint)X≤ 150,000 (demand constraint)Y≤ 300,000 (demand constraint)X≥ 0Y≥ 017–29 Concludedb. andc.(in thousands) Y400 300 200 100X100 200300 400Corner Point X-ValueY-ValueZ = $1.00X + $0.75YA 00 0B 150,000 0150,000 C* 150,000 100,000 225,000 D* 50,000300,000 275,000*E 0300,000 225,000*Point C: Point D:X = 150,000 Y = 300,000X + 0.5Y = 200,000 X + 0.5Y = 200,000150,000 + 0.5Y = 200,000 X + 0.5(300,000) = 200,000Y = 100,000X = 50,000The optimal mix is D: 50,000 packages of napkins and 300,000 boxes of tis-sues. The maximum profit is $275,000.A B C DE17–301. Segmented income statement (in thousands):D P T TotalSales $900 $1,600 $900 $3,400 Less: Variable expenses a710 1,008 900 2,618 Contribution margin $190 $ 592 $ 0 $ 782 Less: Direct fixed expenses 100 210 40 350 Segment margin $ 90 $ 382 $ (40) $ 432 Less: Common fixed expenses b490 Operating (loss) $ (58)a D: $900,000/$90 = 10,000 unitsP: $1,600,000/$200 = 8,000 unitsT: $900,000/$180 = 5,000 unitsD P T TotalVariable production* $670 $ 928 $850 $2,448 Shipping expenses** 40 80 50 170$1,008 $900 $2,618 *$67 ⨯ 10,000; $116 ⨯ 8,000; $170 ⨯ 5,000**$4 ⨯ 10,000; $10 ⨯ 8,000; $10 ⨯ 5,000b Fixed OH (10,000 ⨯ $10) + (8,000 ⨯ $15) + (5,000 ⨯ $20) $320,000Common fixed S & A ($690,000 – $350,000 – $170,000) 170,000Total common fixed expenses $490,0002. Yes, the T-gauge production should be discontinued:D P TotalS ales $900 $1,600 $2,500L ess: Variable expenses 710 1,008 1,718C ontribution margin $190 $ 592 $ 782L ess: Direct fixed expenses 100 210 310S egment margin $ 90 $ 382 $ 472L ess: Common fixed expenses 490 Operating (loss) $ (18)3. D P TotalSales $450 $2,000 $2,450Less: Variable expenses 355 1,260 1,615Contribution margin $ 95 $ 740 $ 835Less: Direct fixed expenses 80 310 390Segment margin $ 15 $ 430 $ 445Less: Common fixed expenses 490 Operating (loss) $ (45) Promoting the P-gauge makes sense since it has the higher unit contribution margin. Also, the increase in P’s contribution margin more than covers the increased advertising. However, cutting production of D to allow increased production of P is unacceptable, since the $48,000 gain of the P-gauge is more than offset by the $75,000 loss of the D-gauge.17–311. Dept. 1 Dept. 3 TotalProduct 401 (500 units):Labor hours a1,000 1,500 1,500 4,000 Machine hours b500 500 1,000 2,000 Product 402 (400 units):Labor hours c400 800 —1,200 Machine hours d400 400 —800 Product 403 (1,000 units):Labor hours e2,000 2,000 2,000 6,000 Machine hours f2,000 2,000 1,000 5,000 Total labor hours 3,400 4,300 3,500 11,200 Total machine hours 2,900 2,900 2,000 7,800 a2 ⨯ 500; 3 ⨯ 500; 3 ⨯ 500 d1 ⨯ 400; 1 ⨯ 400b1 ⨯ 500; 1 ⨯ 500; 2 ⨯ 500 e2 ⨯ 1,000; 2 ⨯ 1,000; 2 ⨯ 1,000c1 ⨯ 400; 2 ⨯ 400 f2 ⨯ 1,000; 2 ⨯ 1,000; 1 ⨯ 1,000The demand can be met in all departments except for Department 3. Produc-tion requires 3,500 labor hours in Department 3, but only 2,750 hours are available.。