ACC 110 Lecture Notes - Typesetting
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Barker Company has a single productcalled a Zet. The company normally produces and sells 83,000 Zetseach year at a selling price of $48 per unit. The company%u2019sunit costs at this level of activity are given below:
Direct materials | $ | 8.50 | |
Direct labor | 9.00 | ||
Variable manufacturing overhead | 1.80 | ||
Fixed manufacturing overhead | 6.00 | ($498,000total) | |
Variable selling expenses | 1.70 | ||
Fixed selling expenses | 5.50 | ($456,500total) | |
Total cost per unit | $ | 32.50 | |
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A number ofquestions relating to the production and sale of Zets are givenbelow. Each question is independent. |
Required: | |
1. | Assume that Barker Company hassufficient capacity to produce 112,050 Zets each year without anyincrease in fixed manufacturing overhead costs. The company couldincrease sales by 35% above the present 83,000 units each year ifit were willing to increase the fixed selling expenses by$130,000. |
a. | Calculate the incremental net operatingincome (Negative amount should beindicated with a minus sign. Do not round intermediatecalculations.) |
Incremental net operating income | $ |
b. | Would the increased fixed selling expenses be justified? | ||||
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2. | Assume again that Barker Company hassufficient capacity to produce 112,050 Zets each year. The companyhas an opportunity to sell 29,050 units in an overseas market.Import duties, foreign permits, and other special costs associatedwith the order would total $20,335. The only selling costs thatwould be associated with the order would be $1.70 per unit shippingcost. Compute the per unit break-even price on this order.(Do not roundintermediate calculations. Round your answer to 2 decimalplaces.) |
Break-even price per unit | $ |
3. | Oneof the materials used in the production of Zets is obtained from aforeign supplier. Civil unrest in the supplier%u2019s 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 costsby 35% during the three-month period and the fixed selling expenseswould continue at two-thirds of their normal level. What would bethe impact on profits of closing the plant for the three-monthperiod? (Input the amount as apositive value. Round your intermediate calculations of unitsproduced and sold to the nearest whole number. Do not round yourother intermediate calculations. Round your final answer to nearestwhole number.) |
Net (Click to select)disadvantageadvantage of closingthe plant | $ |
4. | The company has 700 Zets on handthat were produced last month and have small blemishes. Due to theblemishes, it will be impossible to sell these units at the normalprice. If the company wishes to sell them through regulardistribution channels, what unit cost figure is relevant forsetting a minimum selling price? (Round your answer to 2decimal places.) |
Relevant unit cost | $ |
5. | An outside manufacturer has offeredto produce Zets and ship them directly to Barker%u2019s customers.If Barker Company accepts this offer, the facilities that it usesto produce Zets would be idle; however, fixed manufacturingoverhead costs would continue at 30%. Because the outsidemanufacturer would pay for all shipping costs, the variable sellingexpenses would be reduced by 60%. Compute the unit cost that isrelevant for comparison to the price quoted by the outsidemanufacturer. (Do not round intermediatecalculations. Round your answer to 2decimal places.) |
Total relevant unit cost | $ |