1. Unser Company has a single product called a Mak. The company normally produces and sells...

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1. Unser Company has a single product called a Mak. The company normally produces and sells 72,000 Maks each year at a selling price of $28.00 per unit. The company's unit costs at this level of activity are given below: Direct materials. Direct labor..... $12.00 2.50 1.80 3.20 ($230,400 total) 1.20 3.00 ($216,000 total) Variable manufacturing overhead.. Fixed manufacturing overhead. Variable selling expense.. Fixed selling expense... Total cost per unit.... $23.70 A number of questions relating to the production and sale of Maks follow. Each question is independent. Required: 1. Assume that Unser Company has sufficient capacity to produce 90,000 Maks each year without any increase in fixed manufacturing overhead costs. The company could increase its sales by 20% above the present 72,000 units each year if it were willing to increase the fixed selling expenses by $60,000. Would the increase fixed selling expenses be justified? 2. Assume again that Unser Company has sufficient capacity to produce 90,000 Maks each year. A customer in a foreign market wants to purchase 15,000 Maks. Import duties on the Maks would be $1.40 per unit, and costs for permits and licenses would be $15,000. The only selling costs that would be associated with the order would be $2.60 per unit shipping cost. Compute the per unit break-even price on this order. 3. The company has 800 Maks 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? Explain. 4. Due to a strike in its supplier's plant, Unser Company is unable to purchase more material for the production of Maks. The strike is expected to last for two months. Unser Company has enough material on hand to operate at 40% of normal levels for the two-month period. As an alternative, Unser Company could close its plant down entirely for the two months. If the plant were closed, fixed overhead costs would continue at 50% of their normal level during the two-month period and the fixed selling costs would be reduced by 25%. What would be the impact on profits of closing the plant for the two-month period? 5. An outside manufacturer has offered to produce Maks for Unser Company and to ship them directly to Unser's customers. If Unser Company accepts this offer, the facilities that it uses to produce Maks would be idle; however, fixed overhead costs would be reduced by 80%. Since the outside manufacturer would pay for all the shipping costs, the variable selling costs would be only two-thirds of their present amount. Compute the unit cost that is relevant for comparison to the price quoted by the outside manufacturer. 1. Unser Company has a single product called a Mak. The company normally produces and sells 72,000 Maks each year at a selling price of $28.00 per unit. The company's unit costs at this level of activity are given below: Direct materials. Direct labor..... $12.00 2.50 1.80 3.20 ($230,400 total) 1.20 3.00 ($216,000 total) Variable manufacturing overhead.. Fixed manufacturing overhead. Variable selling expense.. Fixed selling expense... Total cost per unit.... $23.70 A number of questions relating to the production and sale of Maks follow. Each question is independent. Required: 1. Assume that Unser Company has sufficient capacity to produce 90,000 Maks each year without any increase in fixed manufacturing overhead costs. The company could increase its sales by 20% above the present 72,000 units each year if it were willing to increase the fixed selling expenses by $60,000. Would the increase fixed selling expenses be justified? 2. Assume again that Unser Company has sufficient capacity to produce 90,000 Maks each year. A customer in a foreign market wants to purchase 15,000 Maks. Import duties on the Maks would be $1.40 per unit, and costs for permits and licenses would be $15,000. The only selling costs that would be associated with the order would be $2.60 per unit shipping cost. Compute the per unit break-even price on this order. 3. The company has 800 Maks 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? Explain. 4. Due to a strike in its supplier's plant, Unser Company is unable to purchase more material for the production of Maks. The strike is expected to last for two months. Unser Company has enough material on hand to operate at 40% of normal levels for the two-month period. As an alternative, Unser Company could close its plant down entirely for the two months. If the plant were closed, fixed overhead costs would continue at 50% of their normal level during the two-month period and the fixed selling costs would be reduced by 25%. What would be the impact on profits of closing the plant for the two-month period? 5. An outside manufacturer has offered to produce Maks for Unser Company and to ship them directly to Unser's customers. If Unser Company accepts this offer, the facilities that it uses to produce Maks would be idle; however, fixed overhead costs would be reduced by 80%. Since the outside manufacturer would pay for all the shipping costs, the variable selling costs would be only two-thirds of their present amount. Compute the unit cost that is relevant for comparison to the price quoted by the outside manufacturer.

Answer rating: 100% (QA)

1 To determine if the increase in fixed selling expenses would be justified we need to compare the additional contribution margin generated from the increased sales with the increased expenses Current ... View the full answer