Question

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 company’s 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?

	No
	Yes

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 supplier’s 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 Barker’s 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.)