1.Markson Company had the following results of operations for the past year: Sal
ID: 2472971 • Letter: 1
Question
1.Markson Company had the following results of operations for the past year: Sales (8,000 units at $20) $160,000 Variable manufacturing costs $86,000 Fixed manufacturing costs 15,000 Variable selling and administrative expenses 12,000 Fixed selling and administrative expenses 20,000 (133,000) Operating income $27,000 A foreign company whose sales will not affect Markson's market offers to buy 2,000 units at $14 per unit. In addition to variable manufacturing costs, selling these units would increase fixed overhead by $1,600 for the purchase of special tools. If Markson accepts this additional business, its profits will:
a.Increase by $3,500.
b.Decrease by $5,650.
c.Decrease by $1,600.
d.Increase by $1,900.
e.Decrease by $5,100.
2.
Chang Industries has 2,000 defective units of product that have already cost $14 each to produce. A salvage company will purchase the defective units as they are for $5 each. Chang's production manager reports that the defects can be corrected for $6 per unit, enabling them to be sold at their regular market price of $21. The incremental income or loss on reworking the units is:
a.$20,000 loss.
b.$20,000 income.
c.$12,000 loss.
d.$32,000 income.
e.$30,000 income.
3.
Assume markup percentage equals desired profit divided by total costs. What is the correct calculation to determine the dollar amount of the markup per unit?
a.Total cost times markup percentage.
b.Total cost per unit times markup percentage per unit.
c.Total cost per unit divided by markup percentage per unit.
d.Markup percentage per unit divided by total cost per unit.
e.Markup percentage divided by total cost.
Explanation / Answer
1 If Markson accepts this additional business, its profits will:
d.Increase by $1,900 [ (price $14 - variable cost $10.75 + 1.50 + 1600/2000) * 2000]
2. The incremental income or loss on reworking the units is:
c.$12,000 loss. (6 * 2000)
3. the correct calculation to determine the dollar amount of the markup per unit:
b.Total cost per unit times markup percentage per unit. (total cost * markup% )
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