1.
Calculate the contribution margin per hour of masseuse time for each type of massage.
1.
Answer to Problem 33BEB
The contribution margin per hour of masseuse time for full body and trouble spots are $132 and $180 respectively.
Explanation of Solution
Contribution Margin:
Contribution margin can be defined as the amount of difference the sales revenue and the variable expense. It means the amount of sales left over after covering the variable expenses.
The following table represents the contribution margin per hour of masseuse time for each type of massage:
Full body ($) | Trouble Spots ($) | |
Contribution margin per unit | 198 | 90 |
Required masseuse time per massage1 | 1.50 | 0.5 |
Contribution margin per hour of masseuse time2 | 132 | 180 |
Table (1)
Therefore, the contribution margin per hour of masseuse time for full body and trouble spot are $132 and $180 respectively.
Working Notes:
1. Calculation of required masseuse time per massage for the full body:
Hence, the required masseuse time per massage for the full body is 1.50 hours.
Calculation of required masseuse time per massage for trouble spots:
Hence, the required masseuse time per massage for trouble spots is 0.50 hour.
2. Calculation of contribution margin per hour of masseuse time for the full body:
Hence, the contribution margin per hour of masseuse time for the full body is $132.
Calculation of contribution margin per hour of masseuse time for trouble spot:
Hence, the contribution margin per hour of masseuse time for trouble spot is $180.
2.
Calculate the optimal mix of the massages.
2.
Answer to Problem 33BEB
The optimal mix of full body and trouble spot is 1,333 units and 8,000 units respectively.
Explanation of Solution
Since the contribution margin per hour of masseuse time for trouble spot is $180 which is more than the contribution margin per hour of masseuse time for a full body that is $132. Therefore, the masseuse time must be devoted to the trouble spot first till 8,000 massages and then the full body. Use the following formula to calculate the units of the full body:
Substitute 2,000 hours for the total masseuse time and 1.50 hours for the required masseuse time per massage for the full body in the above formula.
Therefore, the optimal mix of trouble spots and full body is 8,000 units and 1,333 units respectively.
Working Note:
3. First, calculate the total masseuse time:
Hence, the total masseuse time is 6,000 hours.
Calculation of masseuse time for trouble spot:
Hence, the masseuse time for trouble spot is 4,000 hours.
Calculation of masseuse time for the full body:
Hence, the masseuse time for the full body is 2,000 hours.
3.
Calculate the contribution margin earned for the optimal mix.
3.
Answer to Problem 33BEB
The contribution margin earned for the optimal mix is $983,934.
Explanation of Solution
Use the following formula to calculate the contribution margin earned for the optimal mix:
Substitute 1,333 units for the number of units of full body, $198 for contribution margin per unit of full body, 8,000 units for the number of units of trouble spot and $90 for contribution margin per unit of a trouble spot in the above formula.
Therefore, the contribution margin earned for the optimal mix is $983,934.
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Chapter 8 Solutions
Managerial Accounting: The Cornerstone of Business Decision-Making
- Health-Temp Company is a placement agency for temporary nurses. It serves hospitals and clinics throughout the metropolitan area. Health-Temp Company believes it will place temporary nurses for a total of 23,500 hours next year. Health-Temp charges the hospitals and clinics 90 per hour and has variable costs of 75.60 per hour (this includes the payment to the nurse). Total fixed costs equal 321,000. Required: 1. Calculate the contribution margin per unit and the contribution margin ratio. 2. Calculate the sales revenue needed to break even. 3. Calculate the sales revenue needed to achieve a target profit of 100,000. 4. What if Health-Temp had target operating income (profit) of 110,000? Would sales revenue be larger or smaller than the one calculated in Requirement 3? Why? By how much?arrow_forwardJean and Tom Perritz own and manage Happy Home Helpers, Inc. (HHH), a house-cleaning service. Each cleaning (cleaning one house one time) takes a team of three house cleaners about 1.5 hours. On average, HHH completes about 15,000 cleanings per year. The following total costs are associated with the total cleanings: Next year, HHH expects to purchase 25,600 of direct materials. Projected beginning and ending inventories for direct materials are as follows: There is no work-in-process inventory; in other words, a cleaning is started and completed on the same day. Required: 1. Prepare a statement of services produced in good form. 2. What if HHH planned to purchase 30,000 of direct materials? Assume there would be no change in beginning and ending inventories of materials. Explain which line items on the statement of services produced would be affected and how (increase or decrease).arrow_forwardJean and Tom Perritz own and manage Happy Home Helpers, Inc. (HHH), a house-cleaning service. Each cleaning (cleaning one house one time) takes a team of three house cleaners about 1.5 hours. On average, HHH completes about 15,000 cleanings per year. The following total costs are associated with the total cleanings: Next year, HHH expects to purchase 25,600 of direct materials. Projected beginning and ending inventories for direct materials are as follows: There is no work-in-process inventory and no finished goods inventory; in other words, a cleaning is started and completed on the same day. HHH expects to sell 15,000 cleanings at a price of 45 each next year. Total selling expense is projected at 22,000, and total administrative expense is projected at 53,000. Required: 1. Prepare an income statement in good form. 2. What if Jean and Tom increased the price to 50 per cleaning and no other information was affected? Explain which line items in the income statement would be affected and how.arrow_forward
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