Richter Company has a single product called a Wim. The company normally produces
ID: 2484193 • Letter: R
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Richter Company has a single product called a Wim. The company normally produces and sells 84,000 Wims each year at a selling price of $36 per unit. The company’s unit costs at this level of activity are given below: Direct materials $ 8.20 Direct labor 10.00 Variable manufacturing overhead 2.20 Fixed manufacturing overhead 5.00 Variable selling expenses 5.60 Fixed selling expenses 4.10 Total cost per unit $ 35.10 A number of questions relating to the production and sale of Wims are given below. Each question is independent. Required: 1. Assume that Richter Company has sufficient capacity to produce 100,800 Wims each year without any increase in fixed manufacturing overhead costs. The company could increase sales by 20% above the present 84,000 units each year if it were willing to increase the fixed selling expenses by $120,000. a. Calculate the incremental net operating income. (Negative amount should be indicated by a minus sign.) b. Would the increased fixed selling expenses be justified? Yes No 2. Assume again that Richter Company has sufficient capacity to produce 100,800 Wims each year. The company has an opportunity to sell 16,800 units in an overseas market. Import duties, foreign permits, and other special costs associated with the order would total $8,400. The only selling costs that would be associated with the order would be $3.00 per unit shipping cost. Compute the per unit break-even price on this order. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) 3. One of the materials used in the production of Wims is obtained from a foreign supplier. Civil unrest in the supplier’s country has caused a cutoff in material shipments that is expected to last for three months. Richter Company has enough material on hand to operate at 20% of normal levels for the three-month period. As an alternative, the company could close the plant down entirely for the three months. Closing the plant would reduce fixed manufacturing overhead costs by 35% during the three-month period and the fixed selling expenses would continue at two-thirds of their normal level. What would be the impact on profits of closing the plant for the three-month period? (Round your intermediate calculations of units produced and sold to the nearest whole number. Do not round your other intermediate calculations. Round your final answer to nearest whole number.) 4. The company has 500 Wims on hand that were produced last month and have small blemishes. Due to the blemishes, it will be impossible to sell these units at the normal price. If the company wishes to sell them through regular distribution channels, what unit cost figure is relevant for setting a minimum selling price? (Round your answer to 2 decimal places.) 5. An outside manufacturer has offered to produce Wims and ship them directly to Richter’s customers. If Richter Company accepts this offer, the facilities that it uses to produce Wims would be idle; however, fixed manufacturing overhead costs would continue at 35%. Because the outside manufacturer would pay for all shipping costs, the variable selling expenses would be reduced by 70%. Compute the unit cost that is relevant for comparison to the price quoted by the outside manufacturer. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)Explanation / Answer
First we need to compute amount of fixed expenses. (i) Fixed Manufacturing Expenses : $5.00 x 84,000 = $420,000 (ii) Fixed Selling Expenses ; $4.10 x 84,000 = $344,400 Total Fixed Expenses : = $764,400
(1) 20% incraese in sales units ; a) Increamental Net Operating Income should be $48,000 b)Yes. Increased fixed selling expenses by $120,000 would be justified
First we need to compute amount of fixed expenses. (i) Fixed Manufacturing Expenses : $5.00 x 84,000 = $420,000 (ii) Fixed Selling Expenses ; $4.10 x 84,000 = $344,400 Total Fixed Expenses : = $764,400
(1) 20% incraese in sales units ; a) Increamental Net Operating Income should be $48,000 b)Yes. Increased fixed selling expenses by $120,000 would be justified
(2) Export order: Per unit break-even price on export order should be $29.5. Fixed Cost for export = (SP-VC) Number of units, we don't know SP for export order, hence it is taken as X. $8,400 = (X- 29) 16,800, = 16,800 X - 487,200, By interpolation,..........X = 495, 600/ 16,800 = $29.5
(3) Shutting down of palnt for 3 months will cost $144,550, in forms of Foregone of Income $18,900 + cost of shutting $125,650.
(4) Blemish unit of 500 quntity: Variable cost of $26.00 per unit is relevant for seling of the units.
Income for 84,000 units 100,800 units Amount ($), except sales in units Amount ($), except sales in units Amount ($), except sales in units Increamental Cash Flows (Amount (S) A a)Sales in unit 1.00 84,000 1.00 100,800 16,800 b)Sales price per unit 36.00 36 36.00 36 c)Sales value (a xb) 36.00 3,024,000 36.00 3,628,800 604,800 B Variabble Cost a)Direct Material 8.20 8.20 b)Direct Labour 10.00 10.00 c)Variable Manf. Overhead 2.20 2.20 d)Variable Selling Expenses 5.60 5.60 e) Total Variable Expenses 26.00 2,184,000 26.00 2,620,800 436,800 C Contribution (A-B) 840,000 1,008,000 168,000 D Fixed Cost a) Fixed Manuf. Overheads 420,000 b)Fixed Seling Expenses 344,400 420,000 Total Fixed Cost 764,400 464,400 884,400 120,000 E Operation Income (C-D) 75,600 123,600 48,000Related Questions
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