Denver Cabinets Company (DCC) produces and sells specialty wooden cabinets. Production is machine-intensive. DCCs variable costs are
Question:
Denver Cabinets Company (DCC) produces and sells specialty wooden cabinets. Production is machine-intensive. DCC’s variable costs are direct materials, variable machining costs and sales commissions. Robert Denver, the owner, is planning production for 2011. Salespeople are paid a 6% commission on each Colonial or Modern models sold and an 8% commission on each Distressed model sold. Fixed costs (administrative/selling and production) total $8,750,000. Annual capacity is 50,000 machine hours which is limited by the availability of machines. Variable machining costs are $200 per hour.
Type of Wooden Cabinet | Annual Demand in units | Selling Price per Unit | Direct material costs per unit | Variable machining costs per unit |
Colonial | 4,000 | $3,000 | $750 | $600 |
Modern | 5,000 | $2,100 | $500 | $500 |
Distressed | 30,000 | $800 | $100 | $300 |
a. Calculate the machine hours per unit required to satisfy the estimated demand for each type of cabinet.
b. Calculate the contribution margin per unit earned from each type of cabinet?
Forensic Accounting and Fraud Examination
ISBN: 978-0078136665
2nd edition
Authors: William Hopwood, george young, Jay Leiner