# Question: The Drosselmeier Corporation located in Munich makes Christmas nutcrackers and

The Drosselmeier Corporation, located in Munich, makes Christmas nutcrackers and has an annual plant capacity of 2,400 product units. Suppose its predicted operating results (in euros) for the year are as follows:

Production and sales of 2,000 units, total sales . €180,000

Manufacturing costs

Fixed (total) ................ 70,000

Variable (per unit) ................ 25

Selling and administrative expenses

Fixed (total) ............... 30,000

Variable (per unit) ............... 10

Compute the following, ignoring income taxes:

1. If the company accepts a special order for 300 units at a selling price of €40 each, how would the total predicted net income for the year be affected, assuming no effect on regular sales at regular prices?

2. Without decreasing its total net income, what is the lowest unit price for which the Drosselmeier Corporation could sell an additional 100 units not subject to any variable selling and administrative expenses, assuming no effect on regular sales at regular prices?

3. List the numbers given in the problem that are irrelevant (not relevant) in solving number 2.

4. Compute the expected annual net income (with no special orders) if plant capacity can be doubled by adding additional facilities at a cost of €500,000. Assume that these facilities have an estimated life of 4 years with no residual scrap value, and that the current unit selling price can be maintained for all sales. Total sales are expected to equal the new total plant capacity each year. No changes are expected in variable costs per unit or in total fixed costs except for depreciation.

Production and sales of 2,000 units, total sales . €180,000

Manufacturing costs

Fixed (total) ................ 70,000

Variable (per unit) ................ 25

Selling and administrative expenses

Fixed (total) ............... 30,000

Variable (per unit) ............... 10

Compute the following, ignoring income taxes:

1. If the company accepts a special order for 300 units at a selling price of €40 each, how would the total predicted net income for the year be affected, assuming no effect on regular sales at regular prices?

2. Without decreasing its total net income, what is the lowest unit price for which the Drosselmeier Corporation could sell an additional 100 units not subject to any variable selling and administrative expenses, assuming no effect on regular sales at regular prices?

3. List the numbers given in the problem that are irrelevant (not relevant) in solving number 2.

4. Compute the expected annual net income (with no special orders) if plant capacity can be doubled by adding additional facilities at a cost of €500,000. Assume that these facilities have an estimated life of 4 years with no residual scrap value, and that the current unit selling price can be maintained for all sales. Total sales are expected to equal the new total plant capacity each year. No changes are expected in variable costs per unit or in total fixed costs except for depreciation.

**View Solution:**## Answer to relevant Questions

Kister Electronics had a fixed factory overhead budget for 20X0 of $72 million. The company planned to make and sell 9 million units of a particular communications device. All variable manufacturing costs per unit were $18. ...St. Tropez S.A. manufactures several different styles of jewelry cases in southern France. Management estimates that during the second quarter of 20X1 the company will be operating at 80% of normal capacity. Because the ...Dan’s Discount Corporation uses target costing to aid in the final decision to release new products to production. A new product is being evaluated. Market research has surveyed the potential market for this product and ...If a target-costing system is used and the existing cost cannot be reduced to the target cost through cost reductions, management should not produce and sell the product. Do you agree? Explain.“Inventory that was purchased for $5,000 should not be sold for less than $5,000 because such a sale would result in a loss.” Do you agree? Explain.Post your question