has a single product called a Dak. The company normally produces and sells 82,00
ID: 2582349 • Letter: H
Question
has a single product called a Dak. The company normally produces and sells 82,000 Daks each year at a selling price of $40 per unit. The company's unit costs at this level of activity are given below: $ 7.50 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses Fixed selling expenses Total cost per unit 9.00 3.20 3.00 ($246, 000 3.70 4.50 ($369, 000 total) total) $30.90 A number of questions relating to the production and sale of Daks follow. Each question is independent. Required:Explanation / Answer
1A) For determining the advantage (disadvantage) of investing additional $120,000 in fixed selling expenses, we need to calculate contribution per unit and then after subtracting additional fixed selling expenses from gross contribution margin financial advantage or disadvantage will be calculated which is shown as follows:-
1B) Yes, the additional investment would be justified as there is a financial advantage of $220,300(as calculated in part 1A) by investing additional $120,000 in Fixed selling expenses.
2) Break even price per unit for order from the customer in the foreign market will be equal to all the relevant costs incurred for the order.
Calculation of break even price per unit for the order from customer in the foreign market
Additional fixed cost of $14,350 is for additional units of $20,500 for the order from the foreign customer, thus it should be allocated for 20,500 units only.
3) In this case the minimum selling price will be equal to all variable manufacturing cost, so that the company can recover its variable cost
Selling Price $40 Less: Variable Costs Direct Materials ($7.50) Direct Labor ($9.00) Variable manufacturing overheads ($3.20) Variable selling expenses ($3.70) Contribution per unit (A) $16.60 Additional Units (82,000*25%) (B) 20,500 units Total Contribution from additional units $340,300 Less: Additional Selling expenses ($120,000) Financial Advantage of investing additional $120,000 $220,300Related Questions
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