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# Sony Microsoft, Morris Co: contribution margin; overhead

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Problem #1
Assume that Sony and Microsoft both plan to introduce a new hand-held video game. Sony plans to use a heavily automated production process to produce its product while Microsoft plans to use a labor-intensive production process. The following revenue and cost relationships are provided:
(**Please see the attachment for the full chart.)

Required:
a) Compute the contribution margin per unit for each company.
b) Prepare a contribution income statement for each company assuming each company sells 8,000 units.
c) Compute each firm's net income if the number of units sold increases by 10%
d) Which firm will have more stable profits when sales change? Why?

Problem #2
Morris Company makes one product, and it expects to incur a total of \$400,000 in indirect (overhead) costs during 2007. Production of the product for the year is expected to be:
(**Please see the attachment for the full chart.)

Required:
a) Calculate a predetermined overhead rate based on the number of units of product expected to be made during 2007.
b) Assuming that direct materials and direct labor costs are \$8 and \$6, respectively, determine the total cost per unit using the overhead rate you calculated in part a).

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#### Solution Preview

Your tutorial is in Excel, attached. Click in cells to see formulas. The ...

#### Solution Summary

Your tutorial is in Excel, attached. Click in cells to see formulas. The presentation gives you a line-by-line schedule to follow to analyze the questions asked and then gives you a paragraph about why profits did not change the same amount even though sales shifted exactly the same for both products. Notice each problem is on a separate tab.

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