Monday, November 18, 2019

Management Accounting IP Week 3 Essay Example | Topics and Well Written Essays - 750 words

Management Accounting IP Week 3 - Essay Example The ski selected is a mass-market ski with a special binding. It will be sold to wholesalers for $80 per pair. Because of availability capacity, no additional fixed charges will be incurred to produce the skis. A $100,000 fixed charge will be absorbed by the skis, however, to allocate a fair share of the company’s present fixed costs to the new product. Ski Pro has approached a subcontractor to discuss the possibility of purchasing the bindings. The purchase price of the bindings from the subcontractor would be $5.25 per binding, or $10.50 per pair. If the Ski Pro Corporation accepts the purchase proposal, it is predicted that direct-labor and variable-overhead costs would be reduced by 10% and direct-material costs would be reduced by 20%. The above calculations show that when Minnetonka Corporation is making the bindings the contribution margin was $10 and when it is from the subcontractor, the contribution margin was $9.5. Thus contribution margin when buying is getting reduced by $0.5 Therefore it is suggested that Minnetonka Corporation should make bindings as contribution margin is higher, rather than buy it from sub-contractor. There is not profit or loss when Minnetonka is making the bindings however if it buys it is incurring a loss of $5000. Hence Minnetonka should make the bindings. The maximum purchase price that should be acceptable to Minnetonka Corporation would be where the contribution margin from buying is at least equal to the contribution margin from making the bindings so that whatever profit or loss incurred when bought is equal when making the bindings. From the calculations in the spreadsheet it was found that if contribution has to be same with both making and buying, that is $10 then Minnetonka Corporation should buy the bindings from the subcontractor at maximum purchase of $10 /pr or $5 per binding. 3. Instead of sales of 10,000 pair of skis, revised estimates show sales volume at 12,500 pair. At this new volume, additional

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