practice - nature of cost(answers).doc

16. (a.) The product to emphasize can be determined puting the contribution margin per unit of the scarce resource, which in this case is grinding machine time.
Product
J K L
Selling price $80 $60 $90
Variable costs 50 40 55
Contribution margin $30 $20 $35
Grinding machine time 10 min. 5 min. 7 min.
Contribution margin
per minute $ $ $

Product L should be emphasized because it has the greatest contribution margin per unit of the scarce resource.

(b.) If additional grinding machine time would be used to produce more of Product L, the time would be worth 60 x $5 = $300 per hour.
17. (a.) & (b.)
Product X Product Y
Sales value after further processing $40,800 $54,200
Costs of further processing 11,600 25,300
Benefit of further processing 29,200 28,900
Less: Sales value at split-off point 32,000 28,000
Net advantage (disadvantage) ($ 2,800) $ 900

(c.) & (d.)
Minimum selling price at split-off ... $29,200 $28,900