Billy Company has a single product called a Wim. The company normally produces a
ID: 2472249 • Letter: B
Question
Billy 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 Billy 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 Billy 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. Billy 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 Billy’s customers. If Billy 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.)
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Billy 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
Billy Compant Incremental Profit Statement Details Operating Level 87000 units 113100 units Per unit Total Amt $ Per unit Total Amt $ Sales Revenue 40 3,480,000 40 4,524,000 Variable costs Direct Materials 8.50 739,500 8.50 961,350 Direct Labor 12.00 1,044,000 12.00 1,357,200 Variable Manufacturing OH 3.80 330,600 3.80 429,780 Variable Selling Overhead 4.70 408,900 4.70 531,570 Total Variable cost 29.00 2,523,000 29.00 3,279,900 Contribution Margin 11.00 957,000.00 11.00 1,244,100 Less Fixed Cost Fixed Maniufacturing Expenses 522,000 522,000 Fixed selling & Admin expense 391,500 521,500 Total Fixed costs 913,500 1,043,500 Net operating Income 43,500 200,600 a Incremental Net Operating Income= 157,100 b As there is increase in net operating income, the increase in advertsiement cost is justified. c Overseas sale BEP Operating Level 26100 units order Per unit Total Amt $ Variable costs Direct Materials 8.50 221,850 Direct Labor 12.00 313,200 Variable Manufacturing OH 3.80 99,180 Variable Selling Overhead 1.30 33,930 Total Variable cost 25.60 668,160 Contribution Margin Less Fixed Cost Import duties ,permits etc 13,050 Total Fixed costs 13,050 For break even require contribution margin= 13,050.00 Required unit contribution margin=13050/26100= $ 0.50 Total Variable cost= $ 25.60 Required Break even price=25.6+0.50= $ 26.10 3 Effective of closing the plant Monthly effect statement Details Operating Level 21750 units Closed Plant Per unit Total Amt $ Per unit Total Amt $ Sales Revenue 40 870,000 - - Variable costs Direct Materials 8.50 184,875 - - Direct Labor 12.00 261,000 - - Variable Manufacturing OH 3.80 82,650 - - Variable Selling Overhead 4.70 102,225 - - Total Variable cost 29.00 630,750 - - Contribution Margin 11.00 239,250.00 - - Less Fixed Cost Fixed Maniufacturing Expenses 522,000 365,400 Fixed selling & Admin expense 391,500 261,000 Total Fixed costs 913,500 626,400 Net operating Income (674,250) (626,400) So net Saving per month by closing plant= 47,850 So net Saving by closing plant for 3 months= 143,550 4 The relevant unit cost of sale will be variable cost per unit =$29 per unit 5 Relevant Unit costs for comparison Activity level 87,000 units Variable costs Direct Materials 8.50 Direct Labor 12.00 Variable Manufacturing OH 3.80 Variable Selling Overhead(40% of normal) 1.88 Total Variable cost 26.18 Add Fixed overhead cost (70% relevant) Total Fixed OH cost relevant 365,400.0 Per unit relevant Fixed OH= 4.20 Total Unit Relevant cost $ 30.38
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