Product X having selling price of $50 can be produced by two processes A and B.

Question

Product X having selling price of $50 can be produced by two processes A and B. Production capacities for the process A and Process B are 15000units and 10000units respectively. Variable cost per unit of $30 and total fixed cost of $80000 are incurred by using process A. Variable cost per unit of $35 and total fixed cost of $50000 are incurred by using process B. For anticipated sales of 7000 units:

Select one:

a. Both the processes will lead into losses

b. Process A is preferred over process B

c. Both the processes will have same earnings

d. Processes cannot be compared

e. Process B is preferred over process

A The total expected overhead costs of a manufacturing company are $200000. The company has 40000 budgeted direct labor hours for the year and has submitted a bid for a proposed job having estimated direct material of $36000 and direct labor of $20000. The estimated direct labor hours for the proposed job are 2000 hours. Cost of the proposed job is Select one:

a. $46000

b. $66000

c. $10000

d. $56000

e. Cannot be determined

Explanation / Answer

Process A is preferred over Process B, calculation giving below:

Process A Process B A Quantity for Sale               7,000.00            7,000.00 B Selling Price 50 50 C Variable Cost 30 35 D (B-C) Contribution 20 15 E (D*A) Total Contribution         1,40,000.00      1,05,000.00 F Fixed Cost             80,000.00          50,000.00 G (F-E) Profit before tax             60,000.00          55,000.00

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