Question

Question #4 (6 Marks) Jackson Chemical Corporation produces a pest control chemical called Agent Orange which it sells to companies to manufacture a pesticide. In 2020, the company incurred $140,000 of costs to produce 14,000 kilograms of the chemical. The selling price of the chemical is $21.00 per kilogram. The costs per unit to manufacture a kilogram of the chemical are presented below: Direct materials Direct labour Variable manufacturing overhead Fixed manufacturing overhead Total manufacturing costs $ 3.50 3.00 2007 1.50 $10.00 The company is considering manufacturing the pesticide itself. If the company processes the chemical further and manufactures the pesticide itself, the following additional costs per kilogram will be incurred: Direct materials $1.00, direct labour $ 25, variable manufacturing overhead, $1.00. No increase in fixed manufacturing overhead is expected. The company can sell the pesticide at $25.00 per kilogram Instructions Determine the incremental per kilogram increase in net income and the total increase in net income if the company manufactures the pesticide.

Answer 1

Solotion Descalption Qty Amount 14000 140000 cost price of chemicals Selling price of chemicals projet 14000 294000 154000 1 unit cost of production of chemical chemical Increase Direct Material cost 0.25 chead Direct Labor Variable Manufacturing overhead fixed manufacturing overhead Per unit cost of chemicals and Increased Cost = 10 +2.25 per wait cost of pesteaedes= 10+2.25 2:25 १२.२४

350000 Selling price of pesticide = 25X14000 Cost porice of pesticide = 12-25 X 14000 Total Net Income =sp-cp 171500 179900 Total Increase in Net Income =175000= 154000 175000 por whit Increase 1.115 in Net Income = 17500 114000

350000 171500 Selling price of pesticide (25 X 14000) cost price of pestecede (12.95 x 14000) Total Net Income (SP-cp) Total Increase in Net Income (178500- 154000) per unit increase in Net Income 178500 24500 1-75