Barker Company has a single product called a Zet. The company normally produces
ID: 2504811 • Letter: B
Question
Barker Company has a single product called a Zet. The company normally produces and sells 84,000 Zets each year at a selling price of $46 per unit. The companys unit costs at this level of activity are given below:
Assume that Barker Company has sufficient capacity to produce 105,000 Zets each year without any increase in fixed manufacturing overhead costs. The company could increase sales by 25% above the present 84,000 units each year if it were willing to increase the fixed selling expenses by $140,000.
Assume again that Barker Company has sufficient capacity to produce 105,000 Zets each year. The company has an opportunity to sell 21,000 units in an overseas market. Import duties, foreign permits, and other special costs associated with the order would total $12,600. The only selling costs that would be associated with the order would be $1.60 per unit shipping cost. Compute the per unit break-even price on this order. (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)
One of the materials used in the production of Zets is obtained from a foreign supplier. Civil unrest in the suppliers country has caused a cutoff in material shipments that is expected to last for three months. Barker Company has enough material on hand to operate at 25% 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 40% 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? (Input the amount as a positive value. Round your intermediate calculations of units produced and sold to the nearest whole number. Do not round your other intermediate calculations. Omit the "$" sign in your response.)
The company has 600 Zets on hand that were produced last month and have small blemishes. Due to the blemishes, it will be impossible to sell these units at the normal price. If the company wishes to sell them through regular distribution channels, what unit cost figure is relevant for setting a minimum selling price? (Round your answer to 2 decimal places. Omit the "$" sign in your response.)
An outside manufacturer has offered to produce Zets and ship them directly to Barkers customers. If Barker Company accepts this offer, the facilities that it uses to produce Zets would be idle; however, fixed manufacturing overhead costs would continue at 30%. Because the outside manufacturer would pay for all shipping costs, the variable selling expenses would be reduced by 60%. Compute the unit cost that is relevant for comparison to the price quoted by the outside manufacturer. (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)
Barker Company has a single product called a Zet. The company normally produces and sells 84,000 Zets each year at a selling price of $46 per unit. The companys unit costs at this level of activity are given below:
Explanation / Answer
Initial Scenario Unit Cost Total cost Direct materials $ 7.50 $ 652,500.00 Direct labor $ 9.00 $ 756,000.00 Variable manufacturing overhead $ 4.80 $ 403,200.00 Fixed manufacturing overhead $ 3.00 $ 252,000.00 Variable selling expenses $ 2.70 $ 226,800.00 Fixed selling expenses $ 5.50 $ 462,000.00 Total cost $ 32.50 $ 2,730,000.00 Total Revenue $ 46.00 $ 3,864,000.00 Net Operating Income $ 13.50 $ 1,134,000.00 Case 1 Increase is sales 25% New Sales 105000 Fixed Manfacturing overhead $ 252,000.00 Fixed Selling expense $ 602,000.00 Unit Cost Total cost Direct materials $ 7.50 $ 787,500.00 Direct labor $ 9.00 $ 945,000.00 Variable manufacturing overhead $ 4.80 $ 504,000.00 Fixed manufacturing overhead $ 2.40 $ 252,000.00 Variable selling expenses $ 2.70 $ 283,500.00 Fixed selling expenses $ 5.73 $ 602,000.00 Total cost $ 32.13 $ 3,374,000.00 Total Revenue $ 46.00 $ 4,830,000.00 Net Operating Income $ 13.87 $ 1,456,000.00 Yes Increased Operating income justifies increase in units produced Case 2 Unit Cost Total Cost Cost $ 32.13 $ 674,800.00 Import Cost etc. $ 12,600.00 Selling Costs $ 1.60 $ 33,600.00 Total $ 34.33 $ 721,000.00 Breakeven cost 34.33 per unit Due to ambiguity in question if we assume on 1.60 as the only selling cost and no fixed and variable selling costs are incurred Unit Cost Total Cost Cost $ 32.13 $ 674,800.00 Reduced Selling cost $ 8.13 $ 170,800.00 Effective cost $ 24.00 $ 504,000.00 Import Cost etc. $ 12,600.00 Selling Costs $ 1.60 $ 33,600.00 Total $ 26.20 $ 550,200.00 Case 3 Closing Down the Plant Fixed Manfacturing overhead cost 60% $ 37,800.00 Fixed Selling Expenses 67% $ 77,000.00 Total Loss $ 114,800.00 Running the plant at reduced capacity Units Produced 0.25 5250 Unit Cost Total cost Direct materials $ 7.50 $ 39,375.00 Direct labor $ 9.00 $ 47,250.00 Variable manufacturing overhead $ 4.80 $ 25,200.00 Fixed manufacturing overhead $ 3.00 $ 37,800.00 Variable selling expenses $ 2.70 $ 14,175.00 Fixed selling expenses $ 5.50 $ 77,000.00 Total cost $ 45.87 $ 240,800.00 Total Revenue $ 46.00 $ 241,500.00 Net Operating Income $ 0.13 $ 700.00 Case 4 Blemmished 600 products Fixed Costs Sunk $ 8.50 Direct materials $ 7.50 Direct labor $ 9.00 Variable manufacturing overhead $ 4.80 Variable selling expenses $ 2.70 Varibal Costs Total $ 24.00 Minimum sellingprice $ 24.00 Case 5 Cost incurred Fixed Manfacturing cost 30% $ 0.90 Variable selling costs 60% $ 1.62 Original Cost $ 32.50 Maximum price quotation that is accepted $ 29.98
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