21. Kumar Inc produces a special kind of metal ingots that are unique, which all
ID: 2407364 • Letter: 2
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21. Kumar Inc produces a special kind of metal ingots that are unique, which allows Kumar to follow a cost plus pricing strategy. Kumar has $11,000,000 of assets and shareholders expect approximately a 10% return on assets. Assume all products produced are sold. Additional data are as follows ales volume ariable costs ixed costs 500,000 units $10 ear r unit $1,700,0 r vear Using the cost-plus pricing approach, what should be the sales price per unit? (Round your answer to the nearest cent.) 22. Tilton Company manufactures sonars for fishing boats. Model 100 sells for $500. Potlatch produces and sells 6,000 units per year. Cost data are as follows: ariable manufacturing ariable selling and administrative ixed manufacturing ixed selling and administrative er unit er unit r vear r vear $300 $120 An offer has come in for a one-time sale of 400 units at a special price of $129 per unit. The marketin,g manager says that the sale will not affect the company's regular sales activities, and that it will not require any variable selling and administrative costs. The production manager says that there is plenty of excess capacity and the sale will not impact fixed costs in any way. What is the effect of this deal on operating income?Explanation / Answer
Answer 1. Variable Costs - 500,000 Units X $10 5,000,000.00 Fixed Costs 1,700,000.00 Total Costs 6,700,000.00 Profit - $11,000,000 X 10% 1,100,000.00 Total Sales 7,800,000.00 SP per Unit - $7,800,000 / 500,000 Units 15.60 Answer 2. Statement of Incremental Profit If Special Order is Accepted Incremental Sales Sales - 400 Units X $129 51,600.00 Incremental Costs Variable Manufacturing Costs - 400 Units X $100 40,000.00 Incremental Profit (Loss) 11,600.00
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