FDE Manufacturing Company has a normal plant capacity of 37,500units per month.
ID: 2433924 • Letter: F
Question
FDE Manufacturing Company has a normal plant capacity of 37,500units per month. Because of an extra large quantity of inventory onhand, it expects to produce only 30,000 units in May. Monthly fixedcosts and expenses are $75,000 ($2 per unit at normal plantcapacity) and variable costs and expenses are $6.50 per unit. Thepresent selling price is $12.50 per unit. The company has anopportunity to sell 7,500 additional units at $7.10 per unit to anexporter who plans to market the product under its own brand namein a foreign market. The additional business is therefore notexpected to affect the regular selling price or quantity of salesof FDE Manufacturing Company.
Prepare a differential analysis report, dated April 21 of thecurrent year, on the proposal to sell at the special price.
Explanation / Answer
7,500 x $7.10
$53,250
7,500 x $6.50
$48,750
$4,500
Differentialrevenue from accepting offer : Revenue from sale of 7,500 units at $7.107,500 x $7.10
$53,250
Differential Cost of acceptingoffer: Variable cost7,500 x $6.50
$48,750
Differentail Income from accepting offer$4,500
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