& T125-2 (similar to) Question Hep * Davis Company makes a product that regulart
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& T125-2 (similar to) Question Hep * Davis Company makes a product that regulartly sells for $15 50 per unit (Ckck the icon to view additional information) T.Davis Company has excess capacity, should it accept the offer from Wesley? Show your calculations 8. Does your answer change Davis Company cperating at capachy? Why or why not? T. H Davis Company has excess capacity, should it accept the offer from Wesley? Show your calculations. (Use a minus sign or parentheses to show a decrease in operating income) 33000 Expected increase in revenue Expected increase in variable manufacturing costs Expected Increase(decrease) in operating income11.000 Davis should reject the oner because operating income wil decrease by $1 tooo. 8. Does your answer change if Davis Company is operating at capacity? Why or why not? (Enter an expected decrease iunit Davis Company receives an offer from Weshy Company to purchase 4400 Revenue at capacity sale price Less Revenue at regular sale price Expected increasedecrease) in revenu More iefo The product has variable manufacturing costs of $10.00 per unit and fxed manufacturing costs of $1.60 per unit (based on $170.000 total Sxed costs at current production of 120,000 units) Therefore, sotal production cost is $11.60 per units for $7.50 each Seling and administrative costs and future sales wll not be affected by the sale, and Davis does not expect any additional Exed costs 33.000 68.200 Print DoneExplanation / Answer
7.
For this question, it is given that selling and administrative expenses and future sales will not be affected by the sale. Further it is stated that there will no additional fixed costs incurred.
Therefore the relevant costs will be only the variable costs of manufacture which are to be incurred (4,400 x $10.00). We shall compare this withe the revenue that the order will generate (4,400 x $7.50).
8.
When the copmany is operating at capacity, the company needs to reduce the regular sales to meet any special order, In such a scenario, the comparios shall be between the revenue from regular sale (4,400 x $ 15.50) and the revenue from the special order (4,400 x $7.500.
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