having issues w/ 31 Market Desired Total assets Variable cost per unit 500,000 $
ID: 2509548 • Letter: H
Question
having issues w/ 31
Market Desired Total assets Variable cost per unit 500,000 $24.00 12% $12,500,000 $17.00 $3,000,000 Units operating profit total l assets Fixed cost per year unit With the current cost structure, Origami cannot achieve its profit goals. It will have to reduce either the fixed costs or the variable costs. Assuming that fixed costs CANNOT be reduced, how much will the target variable costs per year be? A) $12,500,000 B) $2,500,000 C) $7,500,000 D) $8,000,000 30) Lowwater Sailmakers manufactures sails for sailboats. The company bas the.capacity to produce 25,000 sails per year, and is currently producing and selling 20,000 sails per year. The following information relates to current production: Sales- 3.000, 000 Sale price per unit Variable costs per unit $150 Manufacturi Marketing and administrative 25 Total fixed costs: Manufacturing Marketing and administrative $640,000 $280,000 If a special sales order is accepted for 5,000 sails at a price of $125 per unit, and fixed costs remain unchanged, what is the change in operating income? (Assume the special sales order will require variable manufacturing costs and variable marketing and administrative costs.) A) Operating income increases $190,000. C) Operating income increases $225,000. B) Operating income decreases $125,000. D) Operating income decreases $5,000 31) Lowwater Sailmakers manufactures sails for sailboats. The company has the capacity to produce 25,000 sails per year, and is currently producing and selling 20,000 sails per year. The following information relates to current production: $150 Sale price per unit Variable costs per unit: 0 Manufacturing Marketing and administrative 25 Total fixed costs: Manufacturing Marketing and administrative $640,000 $280,000 If a special sales order is accepted for 3,000 sails at a price of $75 per unit, fixed costs remain unchanged, and there are no additional variable marketing and administrative costs for this order, what is the change in operating income? A) Operating income decreases $5,000. C) Operating income increases $35,000. B) Operating income increases $60,000. D) Operating income decreases $36,000.Explanation / Answer
31) B) Operating Income increases $60,000.
If a special sales order is accepted for 3,000 sails and fixed costs remain unchanged (as the production with the new order does not cross the total production capacity of 25,000), and also if there are no additional variable marketing and administrative costs for this order, the only relevant costs are the variable maufacturing costs per unit.
Selling Price $75 - $ Variable Manufacturing Cost $55 = $20; $20 x 3,000 sails = $60,000
Statement showing analysis of Profit & Loss:
Sales Value ($150 x 20,000) + ($75 x 3000) $3,225,000
Variable Costs:
Manufacturing ($55 x 23,000) ($1,265,000)
Marketing & Administrative ($25 x 20,000) ($500,000)
Total FIxed Costs:
Manufacturing ($640,000)
Marketing & Administrative ($280,000)
Operating Income $ 540,000
Operating Income for 20,000 sails = [20,000 x ($150 - $55 - $25)] - $640,000 - $280,000 = $ 480,000
Difference in Operating Income = + $ 60,000
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