ACCOUNTING 8310 CASE TWO Sasha Heart Company produces a single product called Lo

Question

ACCOUNTING 8310 CASE TWO Sasha Heart Company produces a single product called Lovia. The company normally produces and sells 50,000 units of Lovia each year at a selling price of $50 per unit, The Company's unit costs and total costs at this level is given below Unit Cost Total Cost $750,000 400,000 150,000 450,000 200,000 300,000 $15 Direct Materials Direct Labor Variable Manufacturing Overhead Fixed Manufacturing Overhead Variable Selling Expenses Fixed Selling Expenses Cost per Unit and Total Cost $45 $2,250,000 Answer the SIX questions below relating to the production and sale of Things. NOTE: Each question is INDEPENDENT assume Sasha Heart fomnany has enough capacity to produce 75,000 units of Lovia 1

Explanation / Answer

4) The production cost of the units that are seconds, is a sunk cost and hence is not relevant. What is relevant is the variable selling cost per unit of $4. 5) The impact of closing the plant for 3 months is calculated below: Production and sales lost in units = (50000/4)*40% = 5000 Units Contribution lost on 5000 units = 5000*(50-30) = $         -1,00,000 Fixed mfg costs saved = 40%*450000*3/12 = $               45,000 Fixed selling expenses saved = 20%*300000*3/12 = $               15,000 Decrease in profits if plant is closed for 3 months $             -40,000 6) Variable cost of production per unit $                 26.00 Fixed manufacturing cost saved per unit = 450000*75%/50000 = $                   6.75 Variable selling expenses saved $                   1.00 Unit cost relevant for comparison $                 33.75

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