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  • Problem 5-62 Use of Capacity: A. Lyon Jewelry Case

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    thenikkitr
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    This document presents information on two orders from Lyon Jewelry and Avignon Co. for cases. The Lyon order is for 20,000 cases at $67.50 each with variable costs of $62.50, leaving a contribution margin of $5 per unit and total contribution of $100,000. The Avignon order is for 100,000 cases at $85 each with variable costs of $73, leaving a contribution margin of $12 per unit and total contribution of $90,000. Both orders have additional fixed costs. Accepting both orders would exceed the company's monthly machine capacity by 1,250 hours. The company should accept only the Lyon order due to its greater contribution margin.

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    financial management

    Original Title

    Prob 5_62

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    This document presents information on two orders from Lyon Jewelry and Avignon Co. for cases. The Lyon order is for 20,000 cases at $67.50 each with variable costs of $62.50, leaving a contribution margin of $5 per unit and total contribution of $100,000. The Avignon order is for 100,000 cases at $85 each with variable costs of $73, leaving a contribution margin of $12 per unit and total contribution of $90,000. Both orders have additional fixed costs. Accepting both orders would exceed the company's monthly machine capacity by 1,250 hours. The company should accept only the Lyon order due to its greater contribution margin.

    Copyright:

    © All Rights Reserved
    Download as XLS, PDF, TXT or read online from Scribd
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    9 views2 pages

    Problem 5-62 Use of Capacity: A. Lyon Jewelry Case

    Uploaded by

    thenikkitr
    This document presents information on two orders from Lyon Jewelry and Avignon Co. for cases. The Lyon order is for 20,000 cases at $67.50 each with variable costs of $62.50, leaving a contribution margin of $5 per unit and total contribution of $100,000. The Avignon order is for 100,000 cases at $85 each with variable costs of $73, leaving a contribution margin of $12 per unit and total contribution of $90,000. Both orders have additional fixed costs. Accepting both orders would exceed the company's monthly machine capacity by 1,250 hours. The company should accept only the Lyon order due to its greater contribution margin.

    Copyright:

    © All Rights Reserved
    Download as XLS, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as xls, pdf, or txt
    of 2

    Problem 5-62 Use of Capacity

    A. Lyon Jewelry Case


    Cases ordered
    Selling Price Offered by Lyon
    Variable Cost Per Unit
    Raw material
    Direct labor
    Total Variable Cost Per Unit
    Contribution Margin Per Unit

    20,000
    67.50
    32.50
    30.00
    62.50
    5.00

    Overhead is considered to be fixed


    cost, since machine time cost may
    be related to the cost of the equipment
    Total Contribution Margin
    Less: Additional Costs for the Order
    Setup costs
    Cost of special device to be purchased
    Total
    Net Contribution Margin

    B. Avignon Co.
    Cases ordered
    Selling Price Offered by Lyon
    Variable Cost Per Unit
    Raw material
    Direct labor
    Total Variable Cost Per Unit
    Contribution Margin Per Unit
    Total Contribution Margin
    Less: Additional Costs for the Order
    Setup costs
    Cost of special device to be purchased
    Total
    Net Contribution Margin
    Effect on Plant Capacity Utilization
    Total Machine Hours for Lyon Order
    Machine Hour per unit
    Total Machine Hours
    Total Machine Hours for Avignon Order
    Machine Hour per unit

    100,000.00
    15,000.00
    20,000.00
    35,000.00
    65,000.00

    7,500
    85
    43
    30
    73
    12
    90,000.00
    15,000.00
    20,000.00
    35,000.00
    55,000.00

    0.25
    5,000

    0.5

    Total Machine Hours

    3,750

    Total Machine Hours for both Lyon & Avignon

    8,750

    Total Machine Hours Needed is Greater than


    Total Capacity of 7500 machine hours per
    month
    Deficiency in available capacity

    7,500
    1,250

    The Company can only accept one order


    the Lyon Jewelry case because of greater
    contribution margin

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