Question 1) The following monthly data are available for RedEx, which produces o

Question

Question 1) The following monthly data are available for RedEx, which produces only one product that it sells for $84 each. Its unit variable costs are $28, and its total fixed expenses are $64,960. Sales during April totaled 1,600 units.

(a) How much is the break-even point in sales dollars for RedEx?

(b) How many units must RedEx sell in order to earn a profit of $24,640?

(c) A new employee suggests that RedEx sponsor a company softball team as a form of advertising.

The cost to sponsor the team is $1,792. How many more units must be sold to cover this cost? (Points : 25)

Question 2) Describe a process costing system, including the types of companies that commonly use this system. How can process costing information be used in incremental analysis?                     (Points : 20)

Question 3) YXZ Company

Explanation / Answer

1. a) Breakeven point= fixed expenses / contribution margin per unit = $64,960 / (84 - 28) = 64,960 / 56 = 1160 units

b) Profit / contribution margin per unit = 24,640 / 56 = 440 additional units + 1160 breakeven units = 1600 units must be sold to make desired profit.
c) Cost / contribution margin = 1792 / 56 = 32 additional units must be sold to cover this cost.

2. Incremental costs are the additional costs incurred for an activity. Since the total depreciation and utility costs will not change if the activity is outsourced, these costs should not be included in incremental analysis.

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