Olympus Gear, a company specializing in outdoor equipment, faces a challenge. Their division, Guardian Defense, manufactures protective

Fantastic news! We've Found the answer you've been seeking!

Question:

Olympus Gear, a company specializing in outdoor equipment, faces a challenge. Their division, "Guardian Defense," manufactures protective armor for security personnel. Xena, the division manager, receives exciting news from upper management. There's a special incentive! If Guardian Defense achieves positive profits in the second quarter of $2024,$ they'll earn a bonus of $10 %$ of their pre $-$ tax profit. However, there's no bonus for negative profits. Olympus Gear uses full absorption costing for to determine their pre $-$ tax profit.

Xena estimates the following costs for the quarter:

Fixed Costs for the quarter

Management salaries not associated with production $ $40, 000$

Rent of the manufacturing plant $ $60, 000$

Utility charges for the manufacturing plant $ $12, 000$

Variable Costs Rates

Sales Commissions $ $20 /$ armor sold

Maintenance on manufacturing plant $ $64 /$ armor

Direct Materials $ $500 /$ armor

Direct Labor $ $200 /$ armor

Xena anticipates selling $200$ sets of armor in the second quarter of $2024$ at a unit price of $ $1, 234 /$ shield $.$

Note: Ignore any "bonus" to Xena when calculating costs and profits.

$1 .$ Assuming there is no inventory at the beginning of the period, what would be the COGM $/$ u for the quarter if the company produces and sells $200$ sets of armor

$2 .$ Assuming there is no inventory at the beginning of the period, what would be Xena's pre $-$ tax profit for the quarter if she produced and sold $200$ sets of armor?

$3 .$ Assuming no inventory at the beginning of the period, what would be Xena's COGM $/$ u for the quarter if she produced $400$ sets of armor, but still sold $200$ sets of armor?

$4 .$ Assuming no inventory at the beginning of the period, what would be Xena's profit for the quarter if she produced $400$ sets of armor, but still sold $200$ sets of armor?

$5 .$ What does the bonus structure encourage Xena to do $?$

$6 .$ Assuming no inventory at the beginning of the period, if Xena were to produce $400$ sets of armor and sell $200$ sets of armor, but her bonus structure were based on pre $-$ tax profits under a variable costing system, what would her bonus be $?$

$7 .$ What is the primary reason for the difference in Net income between producing $200$ sets of armor and producing $400,$ holding constant sales at $200$ sets of armor?