Description
Consider the following information, prepared based on a monthly capacity of 50,000 units:
|
Category |
Cost per Unit |
|
Variable manufacturing costs |
$12.00 |
|
Fixed manufacturing costs |
$1.00 |
|
Variable marketing costs |
$3.00 |
|
Fixed marketing costs |
$2.00 |
Capacity cannot be added in the short run and the firm currently sells the product for $20 per unit.
Consider each of these scenarios independent of each other.
a) The company is currently producing 50,000 units per month. A potential customer has contacted the firm and offered to purchase 10,000 units this month only. The customer is willing to pay $18 per unit. Since the potential customer approached the firm, there will be no variable marketing costs incurred. Should the company accept the special order? Why or why not? Be specific.
My answer (what I think is right)
Total capacity = 50,000 units
Current Production = 50,000 units
Offer = 10,000
Profit per unit= $18 – $12 =$6.00
10,000 units x $6.00 = $60,000
Yes the company should accept the order because operating income will increase by $60,000 ($18-$12) x 10,000 units and the offer selling price per unit is higher than the variable manufacturing costs.
This is an example of how the professor wants the questions to be answer
|
Current |
With Order |
|
|
Units sold |
30,000 |
40,000 |
|
Rev |
$300,000 |
$355,000 |
|
Var man |
$150,000 |
$200,000 |
|
Var mktg |
$30,000 |
$30,000 |
|
CM |
$120,000 |
$125,000 |
|
Fixed man |
$60,000 |
$60,000 |
|
Fixed mktg |
$20,000 |
$20,000 |
|
Operating income |
$40,000 |
$45,000 |
Yes, because OI will increase by $5,000 ($5.50 – $5.00) x 10,000 units
b) The company is currently producing 40,000 units per month. A potential customer has contacted the firm and offered to purchase 10,000 units this month only. Since the potential customer approached the firm, there will be no variable marketing costs incurred. What is the minimum amount that the firm should be willing to accept for this order?
This is an example of how the professor wants the questions to be answer
(Lost revenue = $4.50 per unit, savings = $1 per unit)
|
Current |
With Order |
|
|
Units sold |
40,000 |
40,000 |
|
Rev |
$400,000 |
$355,000 |
|
Var man |
$200,000 |
$200,000 |
|
Var mktg |
$40,000 |
$30,000 |
|
CM |
$160,000 |
$125,000 |
|
Fixed man |
$60,000 |
$60,000 |
|
Fixed mktg |
$20,000 |
$20,000 |
|
Operating income |
$80,000 |
$45,000 |
Question #3 (44 points)
Consider the following information:
|
Q1 |
Q2 |
Q3 |
|
|
Beginning inventory (units) |
0 |
J |
1,100 |
|
Budgeted units to be produced |
20,000 |
20,000 |
20,000 |
|
Actual units produced |
19,000 |
20,600 |
Q |
|
Units sold |
A |
20,600 |
R |
|
Variable manufacturing costs per unit produced |
$150 |
$150 |
$150 |
|
Variable marketing costs per unit sold |
$20 |
$20 |
$20 |
|
Budgeted fixed manufacturing costs |
$500,000 |
$500,000 |
$500,000 |
|
Fixed marketing costs |
$200,000 |
$200,000 |
$200,000 |
|
Selling price per unit |
$300 |
$300 |
$300 |
|
Variable costing operating income |
B |
$1,978,000 |
S |
|
Absorption costing operating income |
C |
K |
$1,859,000 |
|
Variable costing beginning inventory ($) |
D |
$165,000 |
T |
|
Absorption costing beginning inventory ($) |
E |
L |
U |
|
Variable costing ending inventory ($) |
F |
M |
$75,000 |
|
Absorption costing ending inventory ($) |
G |
N |
$87,500 |
|
PVV |
H |
O |
V |
|
Allocated fixed manufacturing costs |
I |
P |
$480,000 |
There are no price, efficiency, or spending variances, and any production-volume variance is directly written off to cost of goods in the quarter in which it occurs.
Complete the missing figures from the above Table. You need to show your work in order to be eligible for partial credit.
|
Q1 |
Q2 |
Q3 |
|
A |
J |
Q |
|
B |
K |
R |
|
C |
L |
S |
|
D |
M |
T |
|
E |
N |
U |
|
F |
O |
V |
|
G |
P |
|
|
H |
||
|
I |
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