2C1F LAZAR INDUSTRIES PRODUCES TWO PRODUCTS, CRATES AND BOXES. PER U...
215.
CSO: 2C1c
LOS: 2C1f
Lazar Industries produces two products, Crates and Boxes. Per unit selling prices, costs,
and resource utilization for these products are as follows.
Crates
Boxes
Selling price
$20
$30
Direct material costs
$ 5
$ 5
Direct labor costs
8
10
Variable overhead costs
3
5
Variable selling costs
1
2
Machine hours per unit
2
4
Production of Crates and Boxes involves joint processes and use of the same facilities.
The total fixed factory overhead cost is $2,000,000 and total fixed selling and
administrative costs are $840,000. Production and sales are scheduled for 500,000 units
of Crates and 700,000 units of Boxes. Lazar maintains no direct materials, work-in-
process, or finished goods inventory.
Lazar can reduce direct material costs for Crates by 50% per unit, with no change in
direct labor costs. However, it would increase machine-hour production time by 1-1/2
hours per unit. For Crates, variable overhead costs are allocated based on machine hours.
What would be the effect on the total contribution margin if this change was
implemented?
a.
$125,000 increase.
b.
$250,000 decrease.
c.
$300,000 increase.
d.
$1,250,000 increase.