Richter Company has a single product called a Wim. The company normally produces
ID: 2471824 • Letter: R
Question
Richter Company has a single product called a Wim. The company normally produces and sells 87,000 Wims each year at a selling price of $40 per unit. The company’s unit costs at this level of activity are given below:
A number of questions relating to the production and sale of Wims are given below. Each question is
independent.
Assume that Richter Company has sufficient capacity to produce 113,100 Wims each year without any increase in fixed manufacturing overhead costs. The company could increase sales by 30% above the present 87,000 units each year if it were willing to increase the fixed selling expenses by $130,000.
Assume again that Richter Company has sufficient capacity to produce 113,100 Wims each year. The company has an opportunity to sell 26,100 units in an overseas market. Import duties, foreign permits, and other special costs associated with the order would total $13,050. The only selling costs that would be associated with the order would be $1.30 per unit shipping cost. Compute the per unit break-even price on this order. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
One of the materials used in the production of Wims is obtained from a foreign supplier. Civil unrest in the supplier’s country has caused a cutoff in material shipments that is expected to last for three months. Richter Company has enough material on hand to operate at 25% of normal levels for the three-month period. As an alternative, the company could close the plant down entirely for the three months. Closing the plant would reduce fixed manufacturing overhead costs by 30% during the three-month period and the fixed selling expenses would continue at two-thirds of their normal level. What would be the impact on profits of closing the plant for the three-month period? (Round your intermediate calculations of units produced and sold to the nearest whole number. Do not round your other intermediate calculations. Round your final answer to nearest whole number.)
The company has 500 Wims on hand that were produced last month and have small blemishes. Due to the blemishes, it will be impossible to sell these units at the normal price. If the company wishes to sell them through regular distribution channels, what unit cost figure is relevant for setting a minimum selling price? (Round your answer to 2 decimal places.)
An outside manufacturer has offered to produce Wims and ship them directly to Richter’s customers. If Richter Company accepts this offer, the facilities that it uses to produce Wims would be idle; however, fixed manufacturing overhead costs would continue at 30%. Because the outside manufacturer would pay for all shipping costs, the variable selling expenses would be reduced by 60%. Compute the unit cost that is relevant for comparison to the price quoted by the outside manufacturer. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Richter Company has a single product called a Wim. The company normally produces and sells 87,000 Wims each year at a selling price of $40 per unit. The company’s unit costs at this level of activity are given below:
Explanation / Answer
Answered first 4 parts:-
Answer 1 Particulars Per unit price Quantity Total Additional units 26100 (87000*30%) Selling price 40 87000 3480000 1044000 Direct materials 8.5 87000 739500 221850 Direct labor 12 87000 1044000 313200 Variable manufacturing overhead 3.8 87000 330600 99180 Variable selling expenses 4.7 87000 408900 122670 Contribution 11 87000 957000 287100 Fixed manufacturing overhead 6 87000 522000 Fixed selling expenses 4.5 87000 391500 130000 Margin 0.5 87000 43500 157100 Answer 2 Yes Answer 3 No of units 26100 Additional cost 13050 Shipping cost (26100*1.30) 33930 Total additional cost 46980 Contribution per unit required 1.8 Total variable cost 29 Selling price at break even 30.8 Answer 4 25% of normal level i.e. (87000/4) 5437.5 per unit contribution 11 Total contribution 59812.5 Fixed mfg for 3 months (522000/4) 130500 Fixed selling for 3 months (391500/4) 97875 Net margin -168562.5 Shut down 30% reduction in fixed mfg means70% continues -91350 2/3 fixed selling will continue -65250 Total cost -156600 On shut down profit will increase or loss will be reduced by' 11962.5Related Questions
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