Ovation Company has a single product called a Bit. The company normally produces and sells 48,000...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Ovation Company has a single product called a Bit. The company normally produces and sells 48,000 Bits each year at a selling price of $40 per unit. The company's unit costs at this level of activity are given below: Direct materials $12.60 Direct labour 5.40 Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses Fixed selling expenses 1.50 2.70 ($129,600 total) 4.50 3.00 ($144,000 total) Total cost per unit $29.70 A number of questions relating to the production and sale of Bits follow. Each question is independent. Required. 1. Assume that Ovation Company has sufficient capacity to produce 72,000 Bits each year without any increase in fixed manufacturing overhead costs. The company could increase its sales by 25% above the current 48,000 units each year if it were willing to increase the fixed selling expenses by $84,000. a. Calculate the incremental net operating income. Incremental operating income b. Would the increased fixed selling expenses be justified? • Yes O No 2. Assume again that Ovation Company has sufficient capacity to produce 72,000 Bits each year. A customer in a foreign market wants to purchase 12,000 Bits. Import duties on the Bits would be $1.70 per unit, and costs for permits and licences would be $5,400. Both import duties and permits and licenses will be paid by Ovation. The only selling costs that would be associated with the order are $3.00 per unit shipping cost. Compute the per unit break-even price on this order. (Do not round your intermediate calculations. Round your answer to 2 decimal places.) Break-even price per unit 3. The company has 1,000 Bits on hand that have some irregularities and are therefore considered to be "seconds." Due to the irregularities, it will be impossible to sell these units at the normal price through regular distribution channels. What unit cost figure is relevant for setting a minimum selling price? (Round your answer to 2 decimal places.) Relevant unit cost 4. Due to a strike in its supplier's plant, Ovation Company is unable to purchase more material for the production of Bits. The strike is expected to last for two months. Ovation Company has enough material on hand to operate at 30% of normal levels for the two-month period. As an alternative, Ovation could close its plant down entirely for the two months. If the plant were closed, fixed manufacturing overhead costs would continue at 60% of their normal level during the two-month period and the fixed selling expenses would be reduced by 20%. What would be the impact on profits of closing the plant for the two-month period? (Input the amount as a positive value. Do not round your intermediate calculations.) Net disadvantageTof closing the plant of closing the plant ...... .. 5. An outside manufacturer has offered to produce Bits and ship them directly to Ovation's customers. If Ovation Company accepts this offer, the facilities that it uses to produce Bits would be idle; however, fixed manufacturing overhead costs would be reduced by 70%. Since the outside manufacturer would pay for all shipping costs, the variable selling expenses would be only two-thirds of their current amount. Compute the unit cost that is relevant for comparison to the price quoted by the outside manufacturer. (Do not round your intermediate calculations. Round your answer to 2 decimal places.) Total avoidable unit cost Ovation Company has a single product called a Bit. The company normally produces and sells 48,000 Bits each year at a selling price of $40 per unit. The company's unit costs at this level of activity are given below: Direct materials $12.60 Direct labour 5.40 Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses Fixed selling expenses 1.50 2.70 ($129,600 total) 4.50 3.00 ($144,000 total) Total cost per unit $29.70 A number of questions relating to the production and sale of Bits follow. Each question is independent. Required. 1. Assume that Ovation Company has sufficient capacity to produce 72,000 Bits each year without any increase in fixed manufacturing overhead costs. The company could increase its sales by 25% above the current 48,000 units each year if it were willing to increase the fixed selling expenses by $84,000. a. Calculate the incremental net operating income. Incremental operating income b. Would the increased fixed selling expenses be justified? • Yes O No 2. Assume again that Ovation Company has sufficient capacity to produce 72,000 Bits each year. A customer in a foreign market wants to purchase 12,000 Bits. Import duties on the Bits would be $1.70 per unit, and costs for permits and licences would be $5,400. Both import duties and permits and licenses will be paid by Ovation. The only selling costs that would be associated with the order are $3.00 per unit shipping cost. Compute the per unit break-even price on this order. (Do not round your intermediate calculations. Round your answer to 2 decimal places.) Break-even price per unit 3. The company has 1,000 Bits on hand that have some irregularities and are therefore considered to be "seconds." Due to the irregularities, it will be impossible to sell these units at the normal price through regular distribution channels. What unit cost figure is relevant for setting a minimum selling price? (Round your answer to 2 decimal places.) Relevant unit cost 4. Due to a strike in its supplier's plant, Ovation Company is unable to purchase more material for the production of Bits. The strike is expected to last for two months. Ovation Company has enough material on hand to operate at 30% of normal levels for the two-month period. As an alternative, Ovation could close its plant down entirely for the two months. If the plant were closed, fixed manufacturing overhead costs would continue at 60% of their normal level during the two-month period and the fixed selling expenses would be reduced by 20%. What would be the impact on profits of closing the plant for the two-month period? (Input the amount as a positive value. Do not round your intermediate calculations.) Net disadvantageTof closing the plant of closing the plant ...... .. 5. An outside manufacturer has offered to produce Bits and ship them directly to Ovation's customers. If Ovation Company accepts this offer, the facilities that it uses to produce Bits would be idle; however, fixed manufacturing overhead costs would be reduced by 70%. Since the outside manufacturer would pay for all shipping costs, the variable selling expenses would be only two-thirds of their current amount. Compute the unit cost that is relevant for comparison to the price quoted by the outside manufacturer. (Do not round your intermediate calculations. Round your answer to 2 decimal places.) Total avoidable unit cost
Expert Answer:
Related Book For
Managerial Accounting
ISBN: 978-0697789938
13th Edition
Authors: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer
Posted Date:
Students also viewed these finance questions
-
Ovation Company has a single product called a Bit. The company normally produces and sells 60,000 Bits each year at a selling price of $32 per unit. The companys unit costs at this level of activity...
-
Andretti Company has a single product called a Dak. The company normally produces and sells 124,000 Daks each year at a selling price of $42 per unit. The companys unit costs at this level of...
-
Andretti Company has a single product called a Dak. The company normally produces and sells 60.000 Daks each year at a selling price of $32 per unit. The companys unit costs at this level of activity...
-
Let F = [F] lb. a) Determine the force Fp acting at roller D. b) Determine the force FE acting at pin E. F 4 ft B 600 lb. ft -3 ft C -3 ft OD -2 ft- E
-
In Fig. 8.23, a mass m descends a vertical distance from rest. (Neglect friction and the mass of the string.) (a) From the conservation of mechanical energy, will the linear speed of the descending...
-
Refrigerant-134a enters the compressor of a refrigerator at 140 kPa and -10C at a rate of 0.3 m3/min and leaves at 1 MPa. The isentropic efficiency of the compressor is 78 percent. The refrigerant...
-
Dirk Coles checkbook lists the following: Dirk Coles September bank statement shows the following: Requirements 1. Prepare Dirk Coles bank reconciliation on September 30, 2010. How much cash does...
-
The journal of Ward Technology Solutions, Inc., includes the following entries for May, 2012: May 1 The business received cash of $75,000 and issued common stock. 2 Purchased supplies of $500 on...
-
You are the senior auditor in charge for the annual audit of Samal Corp. for the year ended December 31, 2020. You checked mostly the information in the financial records for this small/medium entity...
-
Becket Corporations accountant has prepared the following balance sheet as of November 10, 2020, the date on which the company is to release a plan for reorganizing operations under Chapter 11 of the...
-
3. The following information was extracted from the books of Hero & Co on 1 July 2013. Office Equipment (cost) Accumulated depreciation RM 269000 RM 98320 RM 170680 On 1 September 2013, some office...
-
what extent does the narrative voice function as a conduit for the exploration of existential themes such as alienation, authenticity, and the search for meaning, as authors deploy various rhetorical...
-
Use the SkyCiv Software to neatly draw the shear and bending moment diagrams for the 2 problems assigned to you. On each diagram, identify the minimum and maximum values. Note: on Problem 4, treat...
-
QC Corporation expects an EBIT of $7,500 every year forever. Because it has no depreciable assets, this is also equivalent to its operating cash flows. QC currently has no debt, giving it an equity...
-
After paying an insurance copay at the time of service, a patient receives a subsequent statement for a balance due from their provider. This would be correct under the following scenario: A. The...
-
The financial statements and industry standard ratios are listed below for a hypothetical firm. Complete the blue section. 1) Compute the financial ratios for the firm (columns C and D). 2) Compare...
-
Items for a fundraiser are packaged in small boxes shaped like rectangular prisms that are 4 inches long, 4 inches wide, and 8 inches tall. To transport the items to an event, you want to know how...
-
Government is advised to tax goods whose demand curves are inelastic if the goal is to raise tax revenues. If the goal is to discourage consumption, then it ought to tax goods whose demand curves are...
-
Mark Hansen is employed by Eastern Products, Inc., and works on the companys assembly line. Marks basic wage rate is $20 per hour. The companys union contract states that employees are to be paid...
-
Seattle Western University has provided the following data to be used in its service department cost allocations: Required: Using the direct method, allocate the costs of the service departments to...
-
Shimada Products Corporation of Japan is anxious to enter the electronic calculator market. Management believes that in order to be competitive in world markets, the price of the electronic...
-
An electronic instrument is to be isolated from a panel that vibrates at frequencies ranging from \(25 \mathrm{~Hz}\) to \(35 \mathrm{~Hz}\). It is estimated that at least 80 percent vibration...
-
An exhaust fan, having a small unbalance, weights \(800 \mathrm{~N}\) and operates at a speed of \(600 \mathrm{rpm}\). It is desired to limit the response to a transmissibility of 2.5 as the fan...
-
An air compressor of mass \(500 \mathrm{~kg}\) has an eccentricity of \(50 \mathrm{~kg}-\mathrm{cm}\) and operates at a speed of \(300 \mathrm{rpm}\). The compressor is to be mounted on one of the...
Study smarter with the SolutionInn App