Boston Company manufactures and sells a single product. The following information was extracted from the financial statements of the first two quarters of the year.

Units sold in the first and second quarters totaled 35,400 and 39,700, respectively. Inventories have been fairly stable. Boston employs the high-low method to analyze cost behavior.
INSTRUCTIONS:
1. Compute the variable cost per unit
2. Compute the fixed costs per quarter.
3. Compute the contribution margin per unit. Explain the moaning of the contribution margin to someone who has a limited business background.
4. Assume that 5oston desires to enter a new market by producing and selling faucets. The anticipated selling price and varab4o cost for each faucet is $11 and $7, respectively. Boston will hire a new sales person at an annual salary of $24.000 to handle sales. In addition, new machinery must be leased for $7500 per month 30,000 faucets will be sold annually. Write a memo to management on whether or not Boston should enter the new market. Support your recommendation with yow calculations. Include in your memo the predicted income or loss with the new line. Assume that sales of the current product Imo will not be affected by the decision.

Transcribed Image Text:

$1,132,800 Sales $1,270,400 Costs & Expenses Net Income 911.800 $ 221,000 $ 285,500