Q1 Xenon Company manufactures 10,000 special gears for use in its annual product

Question

Q1

Xenon Company manufactures 10,000 special gears for use in its annual production activities. The following costs are reported:

Direct materials, $3/gear

Direct labor, $4/gear

Variable Factory Overhead, $4.5/gear

Fixed Factory Overhead, $70,000

Parts Plus has offered to sell Xenon 10,000 of these gears for $17 per unit. If Xenon accepts the offer, $40,000 of the fixed factory overhead to special gears would be totally eliminated.
What would be the effect on Xenon's income of accepting Parts Plus's offer?

Question 2 (1 point)

Zurich Inc. has determined the following cost data:

Variable Manufacturing, $15/unit

Fixed Manufacturing,$36,000

Variable Selling, $ 1/unit

Fixed Selling & Administrative, $18,000

The normal selling price is $25 per unit. The company has an opportunity to bid on a one-time only sale of 1,000 units. The variable selling costs would be replaced by a bulk shipping charge of $500.
If excess capacity exists, and this order would not disturb regular sales, what would be the company's incremental cost per unit of accepting this special offer?

Explanation / Answer

Q2

Make Buy Direct materials $           3.00 Direct labor                4.00 Variable overhead                4.50    Relevant variable cost per unit to make             11.50 Cost to buy $               17 Units needed           10,000           10,000 Total variable cost        1,15,000        1,70,000 Add: Fixed Cost                   70,000                   30,000 Total Cost               1,85,000               2,00,000

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