Glade Company produces a single product. The costs of producing and selling a si
ID: 2479737 • Letter: G
Question
Glade Company produces a single product. The costs of producing and selling a single unit of this product at the company’s current activity level of 8,900 units per month are:
The normal selling price is $18 per unit. The company’s capacity is 10,600 units per month. An order has been received from a potential customer overseas for 1,700 units at a price of $15.00 per unit. This order would not affect regular sales.
If the order is accepted, by how much will monthly profits increase or decrease? (The order would not change the company’s total fixed costs.)
Assume the company has 500 units of this product left over from last year that are inferior to the current model. The units must be sold through regular channels at reduced prices. What unit cost is relevant for establishing a minimum selling price for these units? (Round your answer to 2 decimal places.)
Glade Company produces a single product. The costs of producing and selling a single unit of this product at the company’s current activity level of 8,900 units per month are:
The normal selling price is $18 per unit. The company’s capacity is 10,600 units per month. An order has been received from a potential customer overseas for 1,700 units at a price of $15.00 per unit. This order would not affect regular sales.
1.If the order is accepted, by how much will monthly profits increase or decrease? (The order would not change the company’s total fixed costs.)
2.Assume the company has 500 units of this product left over from last year that are inferior to the current model. The units must be sold through regular channels at reduced prices. What unit cost is relevant for establishing a minimum selling price for these units? (Round your answer to 2 decimal places.)
Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses $1.00 Fixed selling and administrative expenses $2.00 $1.50 3.00 $ .50 $4.85Explanation / Answer
Total variable cost = 1.5+3+.5+1 = 6
Contribution from offer = 15 - 6 = 9
Total contribution = 9 * 1700 = $ 15300
Company profit will increase by 15300 by accepting the offer.
2) Minimum price must be equal to variable cost = 1.5+3+.5+1 = $ 6 per unit
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