Feist Co. expects to sell 200,000 units of its product in the next period with t

Question

Feist Co. expects to sell 200,000 units of its product in the next period with the following results. $ 3,000,000 Sales (200,000 units) Costs and expenses Direct materials Direct labor Overhead Selling expenses Administrative expenses (400,000) 800,000) (200,000) (300,000) (514,000) Total costs and expenses (2,214,000) Net profit $ 786,000 The company has an opportunity to sell 20,000 additional units at $13 per unit. The additional sales would not affect its current expected sales. Direct materials and labor costs per unit would be the same for the additional units as they are for the regular units. However, the additional volume would create the following incremental costs: (1) total overhead would increase by 16% and (2) administrative expenses would increase by $86,000.

Explanation / Answer

Feist Co        1 Combine Total Net profit if company accepts   Additional order Normal Vol Additional Vol Total   Details Per unit Total Amt$ Per unit Total Amt$ Amt $ Units              200,000                20,000 Sales Revenue                           15         3,000,000                      13              260,000     3,260,000 Cost & Expenses Direct Materials                            2            400,000                         2                40,000        440,000 Direct Labor                            4            800,000                         4                80,000        880,000 Overhead                            1            200,000                32,000        232,000 Selling Expense                      1.50            300,000                          -          300,000 Admin Expense            514,000                86,000        600,000 Total Cost & Expenses         2,214,000              238,000     2,452,000 Net Profit            786,000                22,000        808,000 (assuming selling expenses not increasing by additional order as nothing specified) The company should accept the offer as it   increases the net profit by $22,000        2 Santos Company Make   Buy Details Per unit Total Amt $ Per unit Total Amt $ Total Units required in a year                 80,000                80,000 Variable cost per unit( making or buying)                      3.30      264,000.00                   3.30              264,000 Fixed costs traceable                      1.00         80,000.00                       -                            -   Allocated fixed costs                      0.50         40,000.00                   0.50                40,000 Total Cost        384,000.00        304,000.00 Total incremental cost of Buying 80,000 units=         (80,000.00) Total incremental cost of Making 80,000 units=           80,000.00 As there is $80,000 saving per year, the company should buy the part from outside.        3 Cantrell Company Units   Cost per unit Total Cost Selling price/unit Sales value Total Profit Current stage profitability of A                 19,000                       10      190,000.00                         30        570,000           380,000 Further Processing Additional cost of further processing                 370,000 Total Cost for further processing =370000+190000=               560,000 Sales revenue after further processing: Product B @$78 for 4100 units=               319,800 Product C @$51 for 7500 units               382,500 Total Revenue               702,300 Net Profit after further processing =               142,300 Incremental Profit /(loss)=142300-380000=            (237,700) As there is net loss in further processing, further processing should not be done.

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