Variable manufacturing overhead ...... $3.80 Fixed manufacturing overhead $1.00 $4.20 Variable selling and administrative expense .. ...... . . $1.50 Fixed selling and administrative expense . . . ........ . $2.40 The normal selling price is $21 per unit. The company's capacity is 75,000 units per year. An order has been received from a mail-order house for 15,000 units at a special price of $14.00 per unit. This order would not affect regular sales. Required: 1. If the order is accepted, by how much will annual profits be increased or decreased? (The order will not change the company's total fixed costs.) 2. Assume the company has 1,000 units of this product left over from last year that are inferior to the current model. The units must be sold through regular channels at reduced prices. What unit cost is relevant for establishing a minimum selling price for these units? Explain. EXERCISE 7-10 Make or Buy a Component [LO 7-3] For many years Futura Company has purchased the starters that it installs in its standard line of farm tractors. Due to a reduction in output, the company has idle capacity that could be used to produce the starters. The chief engineer has recommended against this move, however, point- ing out that the cost to produce the starters would be greater than the current $8.40 per unit purchase price:Chapter 7 Per Unit Total Demand for the com $3.10 company can produce with Direct materials. ...... 2.70 The material costs $3 per Direct labor 1.50 $60,000 Required: Supervision . .. ... . 1.00 $40,000 Which orders would you Depreciation . . . 0.60 Variable manufacturing overhead . orders second? Third? 0.30 $12,000 Rent . . .. $9.20 Total production cost . ... EXERCISE 7-13 Sell or Proc Wexpro, Inc., produces se A supervisor would have to be hired to oversee production of the starters. However, the com- rial and processing costs to pany has sufficient idle tools and machinery that no new equipment would have to be purchased. Seven thousand units of p The rent charge above is based on space utilized in the plant. The total rent on the plant is $80,000 be sold at the split-off poir per period. Depreciation is due to obsolescence rather than wear and tear. sold for $12 each. Required: Required: Prepare computations showing how much profits will increase or decrease as a result of making Should product X15 be proc the starters. EXERCISE 7-14 Identification EXERCISE 7-11 Make or Buy a Component [LO 7-3] Kristen Lu purchased a used Han Products manufactures 30,000 units of part S-6 each year for use on its production line. At this following operating costs: level of activity, the cost per unit for part S-6 is: Direct materials. ... $ 3.60 Depreciation Direct labor . 10.00 Insurance Variable manufacturing overhead . 2.40 Garage rent Fixed manufacturing overhead 9.00 Automobile tax Total cost per part. ..... Variable oper $25.00 An outside supplier has offered to sell 30.909 uzis of port 5.5 each year to Han Products for $21 per part. If Han Products accepts this offer, the facilities now anufacture part The variable operating co S-6 could be rented to a