Dawson Company produces and sells 80,000 boxes of specialty foods each year. Eac
ID: 2395428 • Letter: D
Question
Dawson Company produces and sells 80,000 boxes of specialty foods each year. Each box contains the same assortment of food. The company has computed the following annual? costs:
Cost Item
Total Costs
Variable production costs
$400,000
Fixed production costs
480,000
Variable selling costs
320,000
Fixed selling and administrative costs
200,000
Total costs
$1,400,000
DawsonDawson normally charges $ 25 per box. A new distributor has offered to purchase 8,000 boxes at a special price of $ 22 per box.Dawson will incur additional packaging costs of $1
per box to complete this order.
Requirements
?(a)Suppose
Dawson has surplus capacity to produce 8,000 more boxes. What will be the effect on Dawson?'s income if it accepts this? order?
?(b)
Requirement? (a) Suppose Dawson has surplus capacity to produce 8,000 more boxes. What will be the effect on Dawson?'s income if it accepts this? order?
Select the items that are relevant if the order is? accepted, then calculate the effect on income. ?Fill the boxes in the table with the $ amounts.
$-------------------- in income $--------------
Cost Item
Total Costs
Variable production costs
$400,000
Fixed production costs
480,000
Variable selling costs
320,000
Fixed selling and administrative costs
200,000
Total costs
$1,400,000
Explanation / Answer
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Requirment a Total Additional Packing Cost 8000*1 -8000 Total incremental fixed cost 0 Total incremental revenue 8000*22 176000 Total incremental variable cost 8000*(4+5) -72000 Net Increase in Income 96000 Total incremental variable cost: Total Per Unit Variable Production Cost 400000 5 Variable Selling Cost 320000 4 Requirment b 3000 Units 5000 Units Total Additional Packing Cost 3000*1 -3000 -5000 5000*1 Total incremental fixed cost 0 0 Total incremental revenue 3000*22 66000 -15000 5000(22-25) Total incremental variable cost 3000*(4+5) -27000 0 Net Increase in Income 36000 -20000 Total Increase in income 36000-20000 16000Related Questions
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