1a. Lusk Corporation produces and sells 15,100 units of Product X each month. Th

Question

1a. Lusk Corporation produces and sells 15,100 units of Product X each month. The selling price of Product X is $21 per unit, and variable expenses are $15 per unit. A study has been made concerning whether Product X should be discontinued. The study shows that $72,000 of the $101,000 in fixed expenses charged to Product X would not be avoidable even if the product was discontinued. If Product X is discontinued, the company’s overall net operating income would:

1b. Nesmith Corporation is considering two alternatives: A and B. Costs associated with the alternatives are listed below:

What is the differential cost of Alternative B over Alternative A, including all of the relevant costs?

1c. The management of Kabanuck Corporation is considering dropping product V41B. Data from the company's accounting system appear below:

All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $200,000 of the fixed manufacturing expenses and $111,000 of the fixed selling and administrative expenses are avoidable if product V41B is discontinued.

1e. Eley Corporation produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 56,000 units per month is as follows:

An order has been received from an overseas customer for 3,600 units to be delivered this month at a special discounted price. This order would have no effect on the company's normal sales and would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $2.80 less per unit on this order than on normal sales.

Suppose there is ample idle capacity to produce the units required by the overseas customer and the special discounted price on the special order is $92.40 per unit. By how much would this special order increase (decrease) the company's net operating income for the month?

1a. Lusk Corporation produces and sells 15,100 units of Product X each month. The selling price of Product X is $21 per unit, and variable expenses are $15 per unit. A study has been made concerning whether Product X should be discontinued. The study shows that $72,000 of the $101,000 in fixed expenses charged to Product X would not be avoidable even if the product was discontinued. If Product X is discontinued, the company’s overall net operating income would:

Explanation / Answer

1-A

317100

(15100*21)

226500

(15100*15)

If Product X is discontinued, the company’s overall net operating income would: increase by 61600

1-B

the differential cost of Alternative B over Alternative A, including all of the relevant costs is $43000

1-C

Overall net operating income would decrease by $210,000.

919000

Less:

398,000

333,000

240000

= (52,000) loss if the item is not dropped

333000 -200,000 = 133,000 fixed mfg. expenses remaining

240000 - 111000 = 129000 fixed selling expenses remaining

136,000 + 55,000 = ($262000) Loss in expenses remaining if item is dropped

262,000 - 52,000 = $210,000 decrease

1-E

this special order would increase (decrease) the company's net operating income for the month:

(92.40-50.60-9.70-2.70-(5-2.80))= 27.20*3600 = 97920

Not drop drop difference Sales

317100

(15100*21)

317100 Less: variable expenses

226500

(15100*15)

226500 Contribution margin 90600 90600 Less: fixed expenses 101000 72000 29000 Net operating income -10400 61600

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.