AYB230 Lecture Notes - Lecture 5: Fiduciary, Bank Of New Zealand, Best Interests
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4.
value:
10.00 points
Richter Company has a single product called a Wim. The companynormally produces and sells 60,000 Wims each year at a sellingprice of $40 per unit. The companyâs unit costs at this level ofactivity are given below: |
Directmaterials | $ | 7.70 |
Direct labor | 13.00 | |
Variablemanufacturing overhead | 3.50 | |
Fixed manufacturingoverhead | 6.00 | |
Variable sellingexpenses | 3.50 | |
Fixed sellingexpenses | 4.50 | |
Total cost perunit | $ | 38.20 |
A number of questions relating to the production and sale ofWims are given below. Each question is |
Required: | |
1. | Assume that Richter Company has sufficient capacity to produce72,000 Wims each year without any increase in fixed manufacturingoverhead costs. The company could increase sales by 20% above thepresent 60,000 units each year if it were willing to increase thefixed selling expenses by $120,000. |
a. | Calculate the incremental netoperating income. (Negative amount should be indicated by aminus sign.) |
b. | Would the increased fixedselling expenses be justified? | ||||
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2. | Assume again that Richter Company has sufficient capacity toproduce 72,000 Wims each year. The company has an opportunity tosell 12,000 units in an overseas market. Import duties, foreignpermits, and other special costs associated with the order wouldtotal $4,800. The only selling costs that would be associated withthe order would be $3.30 per unit shipping cost. Compute the perunit break-even price on this order. (Do not roundintermediate calculations. Round your final answer to 2 decimalplaces.) |
3. | One of the materials used in the production of Wims is obtainedfrom a foreign supplier. Civil unrest in the supplierâs country hascaused a cutoff in material shipments that is expected to last forthree months. Richter Company has enough material on hand tooperate at 20% of normal levels for the three-month period. As analternative, the company could close the plant down entirely forthe three months. Closing the plant would reduce fixedmanufacturing overhead costs by 25% during the three-month periodand the fixed selling expenses would continue at two-thirds oftheir normal level. What would be the impact on profits of closingthe plant for the three-month period? (Round yourintermediate calculations of units produced and sold to the nearestwhole number. Do not round your other intermediate calculations.Round your final answer to nearest whole number.) |
4. | The company has 500 Wims on hand that were produced last monthand have small blemishes. Due to the blemishes, it will beimpossible to sell these units at the normal price. If the companywishes to sell them through regular distribution channels, whatunit cost figure is relevant for setting a minimum selling price?(Round your answer to 2 decimal places.) |
5. | An outside manufacturer has offered to produce Wims and shipthem directly to Richterâs customers. If Richter Company acceptsthis offer, the facilities that it uses to produce Wims would beidle; however, fixed manufacturing overhead costs would continue at25%. Because the outside manufacturer would pay for all shippingcosts, the variable selling expenses would be reduced by 50%.Compute the unit cost that is relevant for comparison to the pricequoted by the outside manufacturer. (Do not roundintermediate calculations. Round your final answer to 2 decimalplaces.) |
Barker Company has a single product called a Zet. The companynormally produces and sells 82,000 Zets each year at a sellingprice of $44 per unit. The companyâs unit costs at this level ofactivity are given below:
Direct materials | $ | 7.50 | |
Direct labor | 10.00 | ||
Variable manufacturing overhead | 2.80 | ||
Fixed manufacturing overhead | 5.00 | ($410,000total) | |
Variable selling expenses | 4.70 | ||
Fixed selling expenses | 5.50 | ($451,000total) | |
Total cost per unit | $ | 35.50 | |
A number ofquestions relating to the production and sale of Zets are givenbelow. Each question is independent. |
Required: | |
1. | Assume that Barker Company has sufficient capacity to produce106,600 Zets each year without any increase in fixed manufacturingoverhead costs. The company could increase sales by 30% above thepresent 82,000 units each year if it were willing to increase thefixed selling expenses by $110,000. |
a. | Calculate theincremental net operating income. |
b. | Would theincreased fixed selling expenses be justified? | ||||
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2. | Assume again that Barker Company has sufficient capacity toproduce 106,600 Zets each year. The company has an opportunity tosell 24,600 units in an overseas market. Import duties, foreignpermits, and other special costs associated with the order wouldtotal $19,680. The only selling costs that would be associated withthe order would be $1.70 per unit shipping cost. Compute the perunit break-even price on this order. (Round your answers to2 decimal places.) |
3. | One of the materials used in the production of Zets is obtainedfrom a foreign supplier. Civil unrest in the supplierâs country hascaused a cutoff in material shipments that is expected to last forthree months. Barker Company has enough material on hand to operateat 25% of normal levels for the three-month period. As analternative, the company could close the plant down entirely forthe three months. Closing the plant would reduce fixedmanufacturing overhead costs by 30% during the three-month periodand the fixed selling expenses would continue at two-thirds oftheir normal level. What would be the impact on profits of closingthe plant for the three-month period? (Any reductions oroutflows should be indicated by a minus sign.) |
4. | The company has 500 Zets on hand that were produced last monthand have small blemishes. Due to the blemishes, it will beimpossible to sell these units at the normal price. If the companywishes to sell them through regular distribution channels, whatunit cost figure is relevant for setting a minimum selling price?(Round your answer to 2 decimal places.) |
5. | An outside manufacturer has offered to produce Zets and shipthem directly to Barkerâs customers. If Barker Company accepts thisoffer, the facilities that it uses to produce Zets would be idle;however, fixed manufacturing overhead costs would continue at 30%.Because the outside manufacturer would pay for all shipping costs,the variable selling expenses would be reduced by 60%. Compute theunit cost that is relevant for comparison to the price quoted bythe outside manufacturer. (Do not roundintermediate calculations. Round your answer to 2decimal places.) |