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businesscourse.com/platform/mod/quiz/attempt.php2attempt- 1811768page-6 E Menu QUESTION 7 Not complete Poins out of 2.00 Flg Special Order: High-Low Cost Estimation ABS, Inc. produces air bag systems that it sells to North American automobile manufacturers. Although the company has a capacity of 150.000 units per year. it is currently producing at an annual ASSIGNM Flag question rate of 90,000 units. ABS, Inc. has received an order from a Japanese manufacturer to purchase 30,000 units at $8.75 each. Budgeted costs for 90.000 and 120,000 units are as follows: Finish atte 90,000 Units 120,000 Units Manufacturing costs Direct materials Direct labor Factory overhead Total s225,000 $ 300,000 210,000 630,000 990,000 1,140,000 90,000 1,372,500 1,530,000 157,500 607,500 Selling and administrative 382,500 Total Costs per unt Manufacturing Selling and administrative Total $11.00 4.25 15.25 9.50 3.25 s 12.75 NER F10 F11 12 Prts F6 F8 F9Explanation / Answer
Factory Overhead split into Variable and Fix Incremental Units 120000-90000 30000 Incremental Cost 630000-607500 22500 Hence Variable Cost 22500/30000 0.75 Per unit Selling and Admin split into Variable and Fix Incremental Units 120000-90000 30000 Incremental Cost 390000-382500 7500 Hence Variable Cost 7500/30000 0.25 per unit Part a Per Unit Total on 30000 Units Incremental Revenue 8.75 262500 Less: Variable Cost Direct Material 225000/90000 2.5 75000 Direct Labor 157500/90000 1.75 52500 Overhead- Working above 0.75 22500 Selling and admin -working above 0.25 7500 Net Financial advantage 3.5 105000 Since financial advantage is positive of 105000, should accept order. *Fixed cost will be incurred even if do not produce additional 30000 and hence not relevant. Part b Net Financial advantage if not on full capacity 3.5 105000 Less: Margin lost due to working on full capacity 30000*5.25 157500 Net Financial Disadvantage -52500
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