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Sony Microsoft, Morris Co: contribution margin; overhead

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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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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