Question 3 (2 points) Buxton Company produces several types of industrial machin

ID: 2399298 • Letter: Q

Question

Question 3 (2 points) Buxton Company produces several types of industrial machines. One of their products, Robble the Welding Robot, shews disappointing resuts. Information on it is as follows Sales $1,000,000 Variable selling costs Contribution margin Fixed manufacturing overhead Fixed administrative overhead Operating income If Rebbe is discontinued, 30% of the-ed manufacturing overhead can be e minated. The fed administrative 750,000 100.099 $150,000 190,000 0.900 79-22 overhead represert? general wporate ovrhead alocated to roasts. In addeon, sore Should Buxton eliminate customers who previously bought Robble will switch to Buxton's other products, adding $60,000 ef contibution to these products O A) No. Profits would decrease by $33,00o. O B) Yes. Profits would increase by $117,000 O c) No. Profts would decrease by $90,000, 0 D) Yes. Profits would increase by$130,000. Save Question 4 (2 points)

Explanation / Answer

Answers

Working

Results, if not eliminated

Results, if eliminated

Increase (Decrease) in Net Income

Contribution margin

$ 150,000.00

$ 60,000.00

$ (90,000.00)

Fixed manufacturing overhead

$ 190,000.00

$ 133,000.00 [190,000 x 70% will exist]

$ (57,000.00)

Fixed administrative overhead

$ 30,000.00

$ 30,000.00 [100% allocated will exist]

$ -

Operating Income

$ (70,000.00)

$ (103,000.00)

$ (33,000.00)

The above working shows that Net Income would decrease by $ 33,000 if it is eliminated.

Hence, The correct answer is Option ‘A’: No. Profit would decrease by $ 33,000

The company can accept offer without it’s normal sale being affected. The Offer shall be accepted if Offer price is MORE than RELEVANT cost of producing.

Relevant costs include:

---All variable costs to be incurred.
---Contribution margin lost, if any.
---Any avoidable Fixed Cost.

Working

Material

$ 600.00

Labor

$ 120.00

Variable Overhead

$ 90.00

D=A+B+C

Total Variable (Relevant Cost)

$ 810.00

Sale price of Offer

$ 900.00

F=E-D

Contribution margin per battery

$ 90.00

Hence, The Correct answer is Option ‘D’: YES. Profit would increase by $ 90 per unit for each battery sold.