Framar Inc. manufactures automation machinery according to customer specifications. The company is relatively new and has grown each year. Framar operated at about 75% of practical capacity during its most recent fiscal year ended September 30, with the following operating results (000's omitted):

Framar management has developed a pricing formula based on current operating costs, which are expected to prevail for the next year. This formula was used in developing the following bid for APA Inc.:

Required:
(1) Compute the impact on net income if APA accepts the bid.
(2) Determine the suggested decision if APA is willing to pay only $127,000.
(3) Calculate the lowest price Framar can quote without reducing current net income.
(4) Determine the effect on the most recent fiscal year's profit if all work is done at prices similar to APA's $127,000 counteroffer.

Transcribed Image Text:

Sales ", Less sales commissions.... Net sales Costs: $25,000 500 $22,500 … 6,000 7,500 Direct materials...ans... Factory overhead variable: 625 1,500 125 Supplies Indirect labor Power. 2,250 Factory overhead-fixed $ 500 1.000 1,500 750 $18,000 S 4,500 1,800 S 2,700 Depreciation Corporation administration Total expense. Income tax (40%)- Net income. 29,200 56,000 28,000 5,600 Direct materials costrstesse Direct labor cost. Factory overhead calculated at 50% of direct labor Corporate overhead calculated at 10% of direct labor Total cost, excluding sales commission Add 25% for profit and tax . Suggested price (with profit) before sales commission Suggested total price (suggested price divided by .9 to adjust for $118,800 29,700 $148500 10% sales commission) $165,000