Question

need help with 3, 4 and 5

Richter Company has a single product called a Wim. The company normally produces and sells 75,000 Wims each year at a selling price of $40 per unit. The company's unit costs at this level of activity are given below $ 9.00 11.00 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses Fixed selling expenses 4.00 520 5.70 Total cost per unit $38.70 SERRE mpany has A number of questions relating to the production and sale of Wims are given below. Each question is independent INS Required: 1. Assume that Richter Company has sufficient capacity to produce 97,500 Wims each year without any Increase in fixed manufacturing overhead costs. The company could increase sales by 30% above the present 75,000 units each year if it were willing to increase the fixed selling expenses by $140,000. a. Calculate the incremental net operating income. (Negative amount should be indicated by a minus sign.) Incremental net operating income $ 107,500 b. Would the increased fixed selling expenses be justified?

Answer 1

Answert Conti bertion margin per unit- $40 - 9-11 - 3,80- 5.20 Total contribution maygin will richter forgo if it closes the plant for 3 months = Total sales for 3 months x contribution margin per unit. = (75,000 $3/12 2014) x $11 = (22 5000|12 x 204 )x $11 = (18750 X2014. ) x $us = 3750 x 511 &$41,250 Total fixed costs Company avoid if it closes the plant for 3 months = ( 75,000 x $4 * 3567.x3112) +( 75,000 x $ 5.70 x 1/3 x 3)12). = (26250)+(35625) = $618.15

financial advanlege (disadvantage) as closing the plant for 2 monthis period = $61875 – $41,250 - $20625 ☺ The relevant unit cost is $5.00 (variable selling Expenses) All other lantable costs are sunk, as the units have already been precluced and cost already incurred. The fixed costs would not be relevant, as they will not be affected by the sale do leftover units, 6 Relevant unit cost = Direct material - Direct labor - Veriable manufacturing ovcihead - avoidable fixed mancifactoring over head per unit -- Avoidable variable selling expenses.

= $9 + $11+$380 +($4x65%. )+(5.20 x 6040) = $23.8 +(216) + (3012) -$29.sa per unit . Total relevant unit cost = $29.5a perunit