Question

Business Decision Case The following total cost data are for Ralston Manufacturing Company, which has a normal capacity per period of 400,000 units of product that sell for $18 each. For the foreseeable future, regular sales volume should continue at normal capacity of production.

** Please show work and formulas

Answer 1

Working as follows: Calculate Revised per unit variable cost as follows: Direct Material = OldCost Units $1,720,000 400,000 = $4.3 Revised variable cost per unit = $4.3 - $1.8 = $2.5 Direct Labor - Old Cost Units $1,120,000 400.000 =$2.8 Revised Labor cost per unit = $2.8 + 25% ($2.8) = $3.5

Old Cost Variable overhead cost = Units $560.000 400,000 =$1.4 Revised Variable overhead cost per unit = $1.4 + 25% ($1.4) = $1.75 Selling commission = $18(Selling price per unit) 10% x 42 = $0.9 Total variable cost per unit = $2.5+ $3.5 +1.75 +$0.9 = $8.65 Compute fixed cost as follows:

Fixed Cost = 48,000 x$30.000 20.000 = 2.4* <$30,000 = 3x$30,000 = $90,000 # 2.4 is taken as 3 because of Note 1 in the problem as it states fixed cost increase for 20,000 units or fraction part thereof.

Increase revenue attributable to the special order (48,000 units x $16) $768,000 Less: Increased variable cost attributable to the special order: Per unit variable cost Units in special order Total variable cost (48,000 x $8.65) $8.65 48000 $415,200 Contribution margin Less: Incremental fixed cost $352.800 ($90,000) Increase in net income before taxes $262.800 Decision: Accept the offer as special order increase net income. b)

Meeting a target profit:
Adjusted unit variable cost (w/reduced commision) ($8.65-$0.9)	$7.75
Units	48000
Total Adjusted variable cost	$372,000.00
Total increase in fixed cost	$90,000
Desired net income before income before income taxes	$39,600
Total cost (excluding commission) plus desired net income before income taxes	$39,600
($501,600 ÷0.95)	$528,000
Units	48000
Minimum price per unit ($528,000/48,000)	$11