Richter Company has a single product called a Wim. The company normally produces
ID: 2517973 • Letter: R
Question
Richter Company has a single product called a Wim. The company normally produces and sells 66,000 Wims each year at a selling price of $38 per unit. The company’s unit costs at this level of activity are given below:
A number of questions relating to the production and sale of Wims are given below. Each question is
independent.
Assume that Richter Company has sufficient capacity to produce 72,600 Wims each year without any increase in fixed manufacturing overhead costs. The company could increase sales by 10% above the present 66,000 units each year if it were willing to increase the fixed selling expenses by $140,000.
Assume again that Richter Company has sufficient capacity to produce 72,600 Wims each year. The company has an opportunity to sell 6,600 units in an overseas market. Import duties, foreign permits, and other special costs associated with the order would total $2,640. The only selling costs that would be associated with the order would be $3.30 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.)
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 25% 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.)
The company has 600 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.)
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 25%. Because the outside manufacturer would pay for all shipping costs, the variable selling expenses would be reduced by 50%. 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.)
Richter Company has a single product called a Wim. The company normally produces and sells 66,000 Wims each year at a selling price of $38 per unit. The company’s unit costs at this level of activity are given below:
Explanation / Answer
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1a. Sellin Price 38 Variable Cost: Direct Material 8.4 Direct Labor 11 Variable Manufacturing Ovh 3 Variable Selling Expense 3.9 Total Variable Cost per unit 26.3 Contribution Margin per unit 11.7 Incremental Units 72600-66000 6600 Incremental Contribution Income 6600*11.7 77220 Less: Incremental Sellling Fixed Exp 140000 Incremental Operating Income/(Loss) 77220-140000 -62780 1b. NO as incremental contribution not enough to take care of incremental Selling exp 2. Direct Material 8.4 Direct Labor 11 Variable Manufacturing Ovh 3 Shipping Cost 3.3 Permit etc 2640/6600 0.4 Variable Cost per unit 26.1 Break even point (Fixed Cost/Cont per unit) 26.10 3. Unit Sold (66000*3/12*20%) 3300 Contribution per unit (From 1a) 11.7 Contribution Margin lost if plant closed 38610 Fixed Cost avoided if plant closed: Fixed Manufacturing Cost (6*66000)*3/12*25% 24750 Fixed Selling expense (5*66000)*3/12*1/3 27500 Advantage of closing plant 13640 4. Relevant cost is: 3.90. Since irregular units have already been produced, all production cost are Sunk. Fixed Selling cost not relevant as they will be incurred even if irreuglar product not sold 5. Variable Manufacturing Cost 22.4 Fixed Manufacturing Overhead (6*66000)*75%=297000/66000 4.5 Variable Selling Expense 3.9*50% 1.95 Total Cost avoided 28.85 To be acceptable, outsider quote should be less thatn 28.85Related Questions
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