PROBLEM 1: Longiotti Corporation produces and sells a single product. Data conce

Question

PROBLEM 1: Longiotti Corporation produces and sells a single product. Data concerning that product appear below Selling price per unit. Variable expense per unit Fixed expense per month S150.00 $36.00 $159,600 Determine the monthly break-even in total dollar sales. Show your work. PROBLEM 2: Laco Company acquired its factory building about 20 years ago. For a number of years the company has rented out a small, unused part of the building. The renter's lease will expire soon. Rather than renewing the lease, Laco Company is considering using the space itself to manufacture a new product. Under this option, the unused space will continue to be depreciated on a straight- line basis, as in past years. Direct materials and direct labor cost for the new product would be $50 per unit. In order to have a place to store finished units of the new product, the company would have to rent a small warehouse nearby. The rental cost would be $2,000 per month. It would cost the company an additional $4,000 each month to advertise the new product. A new production supervisor would be hired to oversee production of the new product who would be paid $3,000 per month. The company would pay a sales commission of $10 for each unit of product that is sold Complete the chart below by placing an "X" under each column heading that helps to identify the costs listed to the left. There can be "X's placed under more than one heading for a single cost. Rent on unused fac ation on the f Direct materials and direct labor Rental cost of the small warehouse Advertising cost Sales c Between the alternatives of (1) renting the space out again or (2) using the space to produce the new product

Explanation / Answer

2.

Opportunity Cost- The cost which is forgone to pursue another alternative.

Sunk Cost - Cost which is not relevant for decision making. Ex. Past cost

Variable Cost- Cost Which varies with the unit of Output/Consumption

Fixed Cost- Cost which is expected to remain Same and does not vary with the output.

Product Cost - Cost incurred to make product marketable and saleable

Selling and Admin - Cost incurred to facilitate selling of products and Support cost

Differential Cost - Extra Cost incurred for an alternative course of action.

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1 Selling Price $          150 Less: Variable Cost $            36 Contribution $          114 Contribution % 76% Fixed Expenses $ 159,600 Breakeven (Dollar )
(159600/76%) $ 210,000

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