BusinessCourse E Menu QUESTION 3 Not complete Points out of 500 pRag question Se
ID: 2524173 • Letter: B
Question
BusinessCourse E Menu QUESTION 3 Not complete Points out of 500 pRag question Sell or Process Further Jensen Manufacturing Company makes a partially completed assembly unit that it sells for $36 per unit. Normally, 42,000 units are sold each year. Variable unit cost data on the assembly are as follows: $10 Direct material Direct labor Variable manufacturing overhead 4 The company is now using only 70% of its normal capacity: it could fully use its normal capacity by processing the assembly further and seling it for $43 per unit. If the company does this, material and labor costs will each increase by $2 per unit and variable overhead will go up by $1 per unit. Fixed costs will increase from the current level of $160,000 to $220,000. Prepare an analysis showing whether jensen should process the assemblies further. Use a negative sign with answer to only indicate an income loss from processing assemblies further; otherwise do not use negative signs with your answers. Sell of Process Further Differential Analysis Differential revenue Differential costs Direct material Direct labor Variable overhead Flxed costs Additional Income (loss) from processing further CheckExplanation / Answer
Normal capacity = 42,000 units
Capacity currently used = 42,000 units*70% = 29,400
Differential revenue will be sum of sales revenue from sale of 12,600 units (i.e. 30% of normal capacity) at $43 per unit and additional sales revenue from existing 29,400 units from an increase in sales price from $36 to $43 per unit.
Differential revenue = (12,600 units*$43)+[29,400 units*($43-$36)]
= $514,800+$205,800 = $720,600
Differential Direct material cost = [12,600 units*($10+$2)]+(29,400 units*$2)
= $151,200+$58,800 = $210,000
Differential Direct Labor Cost = [12,600 units*($8+$2)]+(29,400 units*$2)
= $126,000+$58,800 = $184,800
Differential Variable Overhead Cost = [12,600 units*($4+$1)]+(29,400 units*$1)
= $63,000+$29,400 = $92,400
Differential Fixed Cost = $220,000 - $160,000 = $60,000
Sell of Process Further Differential Analysis (Amounts in $)
As there is an additional income from processing further of $173,400, Jensen should process the assemblies further.
Differential Revenue 720,600 Differential Costs Direct Material 210,000 Direct Labor 184,800 Variable Overhead 92,400 Fixed Costs 60,000 Additional Income (Loss) from processing further 173,400Related Questions
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