Exam 2: Profitability Analysis

Duhe Corporation is considering the following six long-term projects: Net Present Value Investment Required Project 1 \ 23,798 \ 14,600 Project 2 \ 20,862 \ 17,100 Project 3 \ 19,350 \ 15,000 Project 4 \ 30,051 \ 18,900 Project 5 \ 21,120 \ 17,600 Project 6 \ 18,550 \ 10,600 Only $59,100 is available for investment in these projects. Required: a. Determine which projects should be accepted. b. Determine the total net present value of all of the accepted projects if your plan from part (a) above is adopted.

Nations Corporation has designed a new product, K48, whose variable cost is $56.70 per unit and that requires 3.10 minutes of the constrained resource. The opportunity cost is $39.00 per minute used of the constrained resource. What is the minimum acceptable selling price for the new product?

Up to how much should the company be willing to pay to obtain enough of the constrained resource to satisfy demand for the two existing products?

A portrait painter has been asked to do far more portraits in the next three months than she has time to paint during that time period. To rank the possible portraits in order of their profitability, she should divide each portrait's estimated incremental profit by the amount of time she estimates it will take to paint the portrait.

From the standpoint of the entire company, if it is a choice between sales of one unit of one product versus another, which product should the salespersons emphasize?

The profitability index for a volume trade-off decision involving products should be computed by dividing the unit contribution margin of a product by the amount of the constrained resource required by one unit of the product.

Ebright Corporation would like to determine the relative profitability of the company's products for purposes of making volume trade-off decisions. For example, the selling price of product H25Z is $50.00 and its unit variable cost is $30.00. One unit of the product requires 2 ounces of the constrained resource. Monthly sales are 6,300 units. What is the profitability index for product H25Z?

How many units of product G92X should be produced each month?

To encourage salespersons to sell the most profitable products, they should be paid sales commissions based on the profitability index and the amount of constraint time sold rather than on sales revenue.

The company is considering launching a new product that would have a variable cost of $134.00 per unit and no avoidable fixed costs. It would require 16 minutes of the constrained resource. The absolute minimum acceptable selling price for the new product should be:

The company is considering launching a new product that would have a variable cost of $178.00 per unit and no avoidable fixed costs. It would require 3 minutes of the constrained resource. The absolute minimum acceptable selling price for the new product should be:

Dorich Corporation would like to determine the relative profitability of a number of jobs. For illustration purposes, the company has provided the following data for job P86M: Revenue..................... \ 98,600 Avoidable cost ............. Incremental profit....... \ 29,580 The amount of the constrained resource used by the job is 340 hours. What is the profitability index for job P86M?

How many units of product O24M should be produced each month?

Corner Corporation is considering six jobs for the upcoming period. Those jobs are listed below, along with relevant data. Incremental Amount of Constrained Profit Resource Required (hours) Job 1 \ 11,648 32 Job 2 \ 4,070 11 Job 3 \ 2,739 11 Job 4 \ 10,088 26 Job 5 \ 3,648 12 Job 6 \ 7,590 22 The total amount of the constrained resource that is available during the upcoming period is 91 hours. Required: a. Determine which jobs should be accepted for the upcoming period. b. Determine the total incremental profit for the upcoming period if your plan from part (a) above is adopted.

Titzer Corporation is about to announce a new product, C02, whose variable cost is $134.80 per unit and that would require 5.90 grams of a raw material that is the constrained resource in the company. The opportunity cost to use this constrained resource is $68.00 per gram. What is the minimum acceptable selling price for the new product?

Coviello Corporation would like to determine the relative profitability of the company's products for purposes of making volume trade-off decisions. For example, the selling price of product C98I is $368.00, its unit variable cost is $257.60, and its unit contribution margin is $110.40. One unit of the product requires 16 minutes of the constrained resource. Monthly sales are 4,400 units. What is the profitability index for product C98I?

How many units of product J45Z should be produced each month?

What is the maximum contribution margin the company can earn per month?

Up to how much should the company be willing to pay to obtain enough of the constrained resource to satisfy demand for the two existing products?

The same constrained resource is used by four different products at Rodrigez Corporation. Data concerning those products appear below: Z100 Z200 Z300 Z400 Unit selling price \ 31.80 \ 29.60 \ 15.90 \ 35.80 Unit variable cost \ 15.90 \ 6.80 \ 3.00 \ 24.30 Amount of the constrained resource required. 0.44 0.34 0.28 0.53 The company does not have enough of the constrained resource to satisfy for demand of all four products. From the standpoint of the entire company, if it is a choice between sales of one unit of one product versus another, which product should the salespersons emphasize?