1. Rutkey Collectibles is a small toy company that manufactures and sells metal
ID: 2554316 • Letter: 1
Question
1.
Rutkey Collectibles is a small toy company that manufactures and sells metal replicas of classic cars. Each car sells for $3.60 The cost of each unit follows: Materials Labor Variable overhead Fixed overhead ($14,250 per month, 19,000 units per month) S 1.10 0.80 0.20 0.75 S 2.85 Total costs per unit One of Rutkey's regular customers asked the company to fill a special order of 600 units at a selling price of $2.85 per unit. Rutkey's can fill the order using existing capacity without affecting total fixed costs for the month. However, Rutkey's manager was concemed about selling at a price below the $2.85 cost per unit and has asked for your advice. Required a. Prepare a schedule to show the impact of providing the special order of 600 units on Rutkey's profits in addition to the regular production and sales of 19,000 units per month. (Select option "higher" or "lower", keeping Status Quo as the base. Select "None" if there is no effect.) Status Quo 19,000 Cars Alternative 19,600 Cars Difference Sales revenue Less variable costs Materials Labor Variable overhead Total variable cost Contribution margin Less: Fixed costs Operating profitExplanation / Answer
a. the following is the required schedule:
b.
lowest price = $2.10 per car.
Since excess capacity is present, the lowest price will be the variable cost per unit. i.e ($1.10 +$0.80+$0.20)=>$2.10 per unit..
c.Decrease.
Since the plant is already operating at capacity, any new order at less than existing total cost per unit will decrease operating profit.
status quo 19,000 cars alternative 19,600 cars difference sales revenue (19,000*$3.60) + (600*$2.85) $68,400 $70,110 $1,170 higher less: variable cost materials (19,000*$1.10) ($19,600*$1.10) $20,900 $21,560 $660 higher labour ($0.80*19,000) ($0.80*19,600) $15,200 $15,680 $480 higher variable overhead ($0.20*19,000) ($0.20*19,600) $3,800 $3,920 $120 higher total variable cost $39,900 $41,160 $1,260 higher COntribution margin (sale revenue - total variable cost) $28,500 $28,950 $450 higher less: fixed cost $14,250 $14,250 $0 none operating profit $14,250 $14,700 $450 higherRelated Questions
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