Jensen Manufacturing Company makes a partially completed assembly unit that it s

Question

Jensen Manufacturing Company makes a partially completed assembly unit that it sells for $42 per unit. Normally, 40,000 units are sold each year. Variable unit cost data on the assembly are as follows: Direct material $10 Direct labor 8 Variable manufacturing overhead 4 The company is now using only 70% of its normal capacity; it could fully use its normal capacity by processing the assembly further and selling it for $49 per unit. If the company does this, material and labor costs will each increase by $2 per unit and variable overhead will go up by $1 per unit. Fixed costs will increase from the current level of $160,000 to $210,000. Prepare an analysis showing whether Jensen should process the assemblies further. Use a negative sign with answer to only indicate an income loss from processing assemblies further; otherwise do not use negative signs with your answers. Sell of Process Further Differential Analysis Differential revenue $Answer Differential costs Direct material Answer Direct labor Answer Variable overhead Answer Fixed costs Answer Additional income (loss) from processing further $Answer

Explanation / Answer

Prepare an analysis showing whether Jensen should process the assemblies further.

Differential revenue (40000*30%)*49 588000 Differential cost Direct material (12000*12) (144000) Direct labour (12000*10) (120000) Variable overhead (12000*5) (60000) Fixed cost (50000) (374000) Additional income (loss) Processing further 214000

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