A company makes a single product and has hired you as a consultant to help management select
Question:
A company makes a single product and has hired you as a consultant to help management select which alternative course of action they should take. What is the purpose of the company hiring you as a consultant?
You obtained the following data from the chief financial officer for particular months where there was variation in the units produced at the factory.
Month. Total Cost Units Produced
2. $375,000. 400 7. $300,000 300 10 $400,000 500
12. $450,000 650 Assignment 1 used regression analysis to the fixed costs and the variable cost of production. Management is considering the following courses of action.
I. Reduce fixed costs by $50,000 per month by eliminating certain staff positions of those responsible for R&D and product development.
II. Purchase equipment that will reduce variable costs by 50%, but will increase fixed costs, in the form of financing costs, by $120,000 per month.
What is your recommended course of action if expected production averages 500 units per month? Marketing may land a substantial contract that will increase average monthly productionto 1,000 units. How does this affect your recommended course of action?
| As Is | Alt 1 | Alt 2 | |
| Fixed Cost | $193,000 | ||
| Variable Cost | $406 | ||
| Volume Breakeven | 324 | ||
| Profit | |||
| Volume of 500 | |||
| Volume to 1,000 |
| As Is | Alt 1 | Alt 2 | |
| Fixed Cost | $193,224 | $143,224 | $313,224 |
| Variable Cost | $406 | $406 | $203 |
| Price is $1,000 per unit Breakeven Volume | $325 | $241 | $393 |
| Profit/Loss at sales of 500 | $175 | $259 | $107 |
| Profit/Loss at sales Of 1,000 | $103,950 | $153,846 | $85,279 |
Expert Answer:
Scenario A company manufactures a product and uses a process costing system to track production costsYoure given production information for a periodin... View the full answer
