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
independent.
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? Yes No
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.)
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? | ||||
|
| 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.) |
Related questions
Richter Company has a single product called a Wim. The companynormally produces and sells 75,000 Wims each year at a sellingprice of $43 per unit. The companyâs unit costs at this level ofactivity are given below: |
| Directmaterials | $ | 8.10 |
| Direct labor | 13.00 | |
| Variablemanufacturing overhead | 4.90 | |
| Fixed manufacturingoverhead | 4.00 | |
| Variable sellingexpenses | 5.70 | |
| Fixed sellingexpenses | 6.00 | |
| Total cost perunit | $ | 41.70 |
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 produce90,000 Wims each year without any increase in fixed manufacturingoverhead costs. The company could increase sales by 20% above thepresent 75,000 units each year if it were willing to increase thefixed selling expenses by $110,000. |
| a. | Calculate the incremental netoperating income. |
| Andretti Company has a single product called a Dak. The companynormally produces and sells 88,000 Daks each year at a sellingprice of $42 per unit. The companyâs unit costs at this level ofactivity are given below:
|
Andretti Company has a single product called a Dak. The companynormally produces and sells 88,000 Daks each year at a sellingprice of $58 per unit. The companyâs unit costs at this level ofactivity are given below:
| Direct materials | $ | 9.50 | |
| Direct labor | 9.00 | ||
| Variable manufacturingoverhead | 3.10 | ||
| Fixed manufacturingoverhead | 4.00 | ($352,000 total) | |
| Variable selling expenses | 3.70 | ||
| Fixed selling expenses | 3.50 | ($308,000 total) | |
| Total cost per unit | $ | 32.80 | |
A number of questions relating to the production and sale ofDaks follow. Each question is independent.
Required:
1-a. Assume that Andretti Company has sufficient capacity toproduce 118,800 Daks each year without any increase in fixedmanufacturing overhead costs. The company could increase its unitsales by 35% above the present 88,000 units each year if it werewilling to increase the fixed selling expenses by $110,000. What isthe financial advantage (disadvantage) of investing an additional$110,000 in fixed selling expenses?
1-b. Would the additional investment be justified?
2. Assume again that Andretti Company has sufficient capacity toproduce 118,800 Daks each year. A customer in a foreign marketwants to purchase 30,800 Daks. If Andretti accepts this order itwould have to pay import duties on the Daks of $2.70 per unit andan additional $24,640 for permits and licenses. The only sellingcosts that would be associated with the order would be $2.00 perunit shipping cost. What is the break-even price per unit on thisorder?
3. The company has 700 Daks on hand that have someirregularities and are therefore considered to be "seconds." Due tothe irregularities, it will be impossible to sell these units atthe normal price through regular distribution channels. What is theunit cost figure that is relevant for setting a minimum sellingprice?
