(e) $520,000 Use the following information to answer Question (7) Waters Company
ID: 2400972 • Letter: #
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(e) $520,000 Use the following information to answer Question (7) Waters Company produces and sells a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 15,000 units per month is as follows Direct materials Direct labor Variable overhead Fixed overhead Variable selling and administrative costs Fixed selling and administrative costs Total cost per unit $5.50 12.75 2.00 4.00 2.20 3.00 29.45 45%0 The normal selling price is $42 per unit. The company's capacity is 20,000 units per month. Waters recently received a special order from an overseas importer. The order is for 3,000 units at a price of $26 per unit. This order would not disrupt domestic sales or production. The order would not change the company's total fixed costs. ?If the order is accepted, by how much will waters, monthly profits be increased or decreased? (a) $10,350 decrease (b) $23,250 increase (c) $1,650 increase (d) $10,650 increase (8) A business is preparing to invest $2,500,000 for the purchase of a building, which it intends to lease to a third party for $200,000 per year. If an alternative investment is available that yields a 6% annual return, the opportunity cost of the building purchase is: (a) $2,500,000 (b) $200,000 (c) $150,000Explanation / Answer
Company Capacity- 20000 Unit Normal Activity Level Unit 15000 Unit rate ($) Amount (In $) Sales Selling price 15000 units 42.00 6,30,000 Cost Direct Material 5.50 82,500 Direct labour 12.75 1,91,250 Variable overhead 2.00 30,000 Variable Selling & Distribution 2.20 33,000 Total Variable Cost 22.45 3,36,750 Fixed Over Head 4 60,000 Fixed Selling & Admin Cost 3 45,000 Total fixed Cost 1,05,000 Total cost 4,41,750 Profit 1,88,250 Increased Activity Level Unit 18000 Unit rate ($) Amount (In $) Sales Selling price 15000 Units 42.00 6,30,000 3000 Units 26.00 78,000 7,08,000 Cost Direct Material 5.50 99,000 Direct labour 12.75 2,29,500 Variable overhead 2.00 36,000 Variable Selling & Distribution 2.20 39,600 Total Variable Cost 22.45 4,04,100 Fixed Over Head 3.33 60,000 Fixed Selling & Admin Cost 2.50 45,000 Total fixed Cost 1,05,000 Total cost 5,09,100 Profit 1,98,900 Change in Profit (In $) 10,650.00 Conclusion:- d) Profit Incereased by $ 10,650.00
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