1. A company expects to produce and sell 8,000 units of a single product. Manage
ID: 2372276 • Letter: 1
Question
1. A company expects to produce and sell 8,000 units of a single product. Management desires a 20% return on assets of $1,520,000. The following additional company information is available:
Variable Cost (per Unit)
Production costs $78
Nonproduction costs $22
Fixed costs (in total)
Overhead $110,000
Nonproduction $40,000
Compute markup per unit. Assume that markup percentage equals desired profit divided by total costs
(A)$91.75
(B)$38.00
(C)$100.00
(D)$156.75
(E)$118.75
2. A company expects to produce and sell 9,000 units of a single product. Management desires an 18% return on assets of $1,750,000. The following additional company information is available:
Variable Cost (per Unit)
Production costs $79
Nonproduction costs $5
Fixed costs (in total)
Overhead $279,000
Nonproduction $90,000
Compute markup per unit. Assume that markup percentage equals desired profit divided by total costs.
(A)$125
(B)$160
(C)$110
(D)$84
(E)$35
3. Paz Inc. manufactures a product which contains a small motor. The company has always purchased this motor from a supplier for $55 each. Paz recently upgraded its own manufacturing capabilities and now has enough excess capacity (including trained workers) to begin manufacturing the motor instead of buying it. The company prepared the following per unit cost projections of making the motor, assuming that overhead is allocated to the part at the normal predetermined overhead rate of 150% of direct labor cost.
Direct Materials $16
Direct labor 20
Overhead (fixed and variable) 30
Total $66
The required volume of output to produce the motors will not require any incremental fixed overhead. Incremental variable overhead cost is $21 per motor. What is the effect on income if Paz decides to make the motors?
Income will increase by $19 per unit.
4. A company has the choice of either selling 750 defective units as scrap or rebuilding them. They have already spent $14 per unit making these items. The company could sell the defective units as they are for $8.00 per unit. Alternatively, the company could rebuild the units at an incremental cost of $1.00 per unit. If it rebuilds the units, they will not be able to produce 750 new units with a unit cost of $3.00 and a normal selling price of $15.00 each. What should the company do?
(A) Income will decrease by $11 per unit. (B) Income will increase by $2 per unit. (C) Income will increase by $11 per unit. (D) Income will decrease by $2 per unit. (E)Income will increase by $19 per unit.
Explanation / Answer
1.) (B)
markup =profit/no.of units=20% of asset/8000
= $38;
2.) E($35);markup =profit/no.of units
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