Question

Olympic Printers operates a printing press with a monthly capacity of 4,000 machine-hours. Olympic has two main customers: Caesar Corporation and Julius Corporation.Data on each customer for January are:

                                   Caesar Corp.            Julius Corp.

Revenues $210,000            $140,000

Variable costs                       87,000              89,000        

Contribution margin                  123,000            51,000        

Fixed costs (allocated)                  108,000            61,000           

Operating income               $ 15,000           ($10,000)        

Machine-hours required hours    3,000 hours        1,000 hours     

Julius Corporation (Julius) indicates that it wants Olympic to do an additional $140,000 worth of printing jobs during February. These jobs are identical to the existing business Olympic did for Julius in January in terms of variable costs and machine-hours required. Olympic anticipates that the business from Caesar Corporation (Caesar) in February will be the same as that in January. Olympic can choose to accept as much of the Caesar and Julius business for February as its capacity allows. Assume that total machine-hours and fixed costs for February will be the same as in January.

Which of the following statement is correct?

	a.	Olympic should not take an additional job from Julius because it will generate an additional $10,000 operating loss.
	b.	The contribution margin per a unit of constrained resource for Caesar is $5,000.
	c.	The contribution margin per a unit of constrained resource for Caesar is $10 lower than that for Julius.
	d.	If Olympic takes an additional job from Julius, the cost of giving up Caesar business is negligible.
	e.	Both a and b are correct.

Answer 1