Moore Company sells both designer and moderately priced fashion accessories. Top management is deciding which product line to emphasize. Accountants have provided the following data:
Designer Moderately Priced
Average sales price $185 $87
Average variable costs 105 22
Average contribution margin 80 65
Average fixed costs (allocated) 20 10
Average operating income $60 $55
The Moore Company store in Grand Junction, Colorado, has 14,000 square feet of floor space. If Moore Company emphasizes moderately priced goods, it can display 840 items in the store. If Moore Company emphasizes designer wear, it can display only 560 designer items. These numbers are also the average monthly sales in units.
Prepare an analysis to show which product the company should emphasize.
The company should emphasize on moderately priced productsfor profit maximization.
In business terms, a management refers to an authority responsible for managing and controlling the activities of an entity and its human assets.A management has the authority to develop policies and strategies for abusiness entity and also drafts decisions.
Moderately Priced ($)
Units displayed per square foot:
Contribution margin per unit
Contribution margin per square foot of display space
Capacity square foot of display space
Total contribution margin at capacity
The company should emphasize on moderately priced products because it will provide a higher contribution margin.
Members of the board of directors of Security Check have received the following operating income data for the year ended May 31, 2018:
For the Year Ended May 31, 2018
Net Sales Revenue
Cost of Goods Sold:
Total Cost of Goods Sold
Selling and Administrative Expenses:
Total Selling and Administrative Expenses
Operating Income (Loss)
Members of the board are surprised that the industrial systems product line is not profitable. They commission a study to determine whether the company should drop the line. Company accountants estimate that dropping industrial systems will decrease fixed cost of goods sold by $80,000 and decrease fixed selling and administrative expenses by $12,000.
1. Prepare a differential analysis to show whether Security Check should drop the industrial systems product line.
2. Prepare contribution margin income statements to show Security Check’s total operating income under the two alternatives: (a) with the industrial systems line and (b) without the line. Compare the difference between the two alternatives’ income numbers to your answer to Requirement 1.
3. What have you learned from the comparison in Requirement 2?
Suppose Roasted Pepper restaurant is considering whether to (1) bake bread for its restaurant in-house or (2) buy the bread from a local bakery. The chef estimates that variable costs of making each loaf include $0.52 of ingredients, $0.27 of variable overhead (electricity to run the oven), and $0.79 of direct labor for kneading and forming the loaves. Allocating fixed overhead (depreciation on the kitchen equipment and building) based on direct labor, Roasted Pepper assigns $0.96 of fixed overhead per loaf. None of the fixed costs are avoidable. The local bakery would charge $1.78 per loaf.
1. What is the full product unit cost of making the bread in-house?
2. Should Roasted Pepper bake the bread in-house or buy from the local bakery? Why?
3. In addition to the financial analysis, what else should Roasted Pepper consider when making this decision?
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