Hutcherson Company produces Product Q with variable manufacturing costs of $10 p
ID: 2476170 • Letter: H
Question
Hutcherson Company produces Product Q with variable manufacturing costs of $10 per unit. The selling price of Product Q is $15 per unit. The fixed manufaturing overhead cost is $75,000. A normal production run includes 150,000 units.
Hutcherson Company has discovered an additional process to change Product Q into Product QB. Additional costs are estimated at $3 per unit. Product QB would sell for $19. Additional fixed manufacturing overhead costs of $4,500 would be incurred if Product QB is produced. There would be no change in the number of units produced.
Make an analysis to determine if Hutcherson Company should continue producing and selling Product Q or change it into Product QB.
Explanation / Answer
Answer:
Since net income increase by $145500 so change it into Product QB. .
Hutcherson Company Particulars Product Q Product QB Selling price 15 19 Variable cost 10 10 Additional cost 3 Total variable cost 10 13 Contribution margin per unit 5 6 Total contribution margin ($) 750000 900000 Less: Fixed costs 75000 75000 Additional fixed costs 4500 Net income 675000 820500 Increase in net income 145500Related Questions
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