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Home > Education > Homework Help > Finance & Accounting   »   Special order, functional-based analysis

 
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Old Jun 20, 2008, 11:30 PM
vazzy
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Special order, functional-based analysis

Lancaster company manufactures two types of hair conditiners, creemy and chiney, out of a joint process. The joint (common) costs incurred are $840,000 for a standard production run that generates 360000 gallons of creemy and 240000 gallons of shiney. Additional processing costs beyond the spilt-off point are $2.80 per gallon for creemy and $1.80 for shiney. Creemy sells for $4.80 per gallon, while shiney sells for $7.8- per gallon.

comida buena, a supermarket chain has asked Lancaster to supply it 480 000 gallons of shiney at a price of $7.30 per gallon. Comida buena plans to have the conditioner bottled in 16-ounce bottles with its own Comida Buena label.

if lancaster accets the order, it will save $0.10 per gallon in packaging of shiney. There is sufficient excess capacity for the order. However the market for creemy is saturated and any additional sales of creemy would take place at a price of $3.20 per gallon. Assume that no significant non-unit leavel activity costs are incurred.

1. what is the profit normally earned on one production run of creemy and shiney??

this is as far as i got with the question:

2*240000=480000 gallons reserve

reserve for creemy 2304000
reserve for shiney 3504000
Total 5808000

i got confused on how to work out the variable expense of 2016000 for creemy and 816000 for shiney??

the final answer for the question is 1296000 profit.

any help??
thanks you

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