Tuesday, April 20th, 1999
Announcements:

Office hours during finals week: Tuesday 9-11, Wednesday 1-3, and by appointment

Read appendixes B & C before your reading of chapter 24

Lecture notes:

• Direct materials
• Direct labor
• Variable overhead
• Fixed overhead

Absorption costing--fixed overhead treated as manufacturing cost

VS.

Variable costing--fixed overhead not a production cost

Page 1033, Problem B5

Jones: CM > avoidable fixed costs (keep running)
Lee: CM < avoidable fixed costs (shut down)

Jones:

	Change in NI
Change in CM	- 73,250
Change in FC	51,200
	- 22,050

Unavoidable FC = 46,050

Lee:

	Change in NI
Change in CM	- 54,740
Change in FC	55,100
	360

Unavoidable FC = 26,140

Page 1022, SE 10

Change in revenue	$4
Change in costs	$3
Change in profits	$1

Product B should be processed further.

Example: Make or Buy Decision

External purchase price = $23.95 per unit

Make the component

Example: Special Order

Manufacturing capacity = 25,000 units
Budgeted sales = 21,000 units at $55 per unit
Special order = 5,000 units at $51 per unit

Accept this order because relevant costs > special order price

CM from special order = 5,000 (51 - 41.90) = 45,500

CM loss from regular sales = -1,000 (55 - 41.90) = -13,100

Change in CM = 32,400

Example: Present Value Problem

How much will you invest today in exchange for $10,000 seven years from today?
Interest Rate = 12%

Table value = .452
Invest $4,520

Example: Annuity Problem

How much will you invest today in exchange for $5,000 per year for each of the next 10 years?
Interest Rate = 8%

Table value = 6.71
Invest $33,550

Page AP-34

Exercise 8:

1)	24,000 x .497 = $11,928
2)	2,000 x 8.384 = $16,768
3)	5,000 x .65 = $3,250
4)	5,000 x 3.89 = $19,450

Exercise 12:

$5,200 x 4.639 = $24,133

Do not invest $30,000