The Hampshire Company manufactures umbrellas that sell for $12.50 each. In 2014,

Question

The Hampshire Company manufactures umbrellas that sell for $12.50 each. In 2014, the company made and sold 60,000 umbrellas. The company had fixed manufacturing costs of $216,000. It also had fixed costs for administration of $79,525. The per-unit costs of each umbrella are as follows:

Direct Materials: $3.00

Direct Labor: $1.50

Variable Manufacturing Overhead: $0.40

Variable Selling Expenses: $1.10

8. A company that specializes in tours in England has offered to purchase 5,000 umbrellas at $11 each from Hampshire. The variable selling costs of these additional units will be $1.30 as opposed to $1.10 per unit. Also, this ` activity will incur another $15,000 of fixed administrative costs. Should Hampshire agree to sell these additional 5,000 umbrellas to the touring business? Provide calculations to support your decision. Please complete this spreadsheet:

Sales Mix Current Specialty Total Expected Sales Units X X Revenue = Sales X Price $ $ $ Variable Costs X Units $ $ $ Contribution Margin $ $ $ Fixed Costs $ $ $ Operating Income $ Prior Net Income From Requirement 1 $ Additional Operating Income (Operating Income Above Less Prior Income) $ Decision With Explanation

Explanation / Answer

ans)

variable cost(3+1.5+0.4+1.1) X 60,000

(3+ 1.5+0.4+1.3) x 5000

As income increases by 9000 Hampshire company can accept the offer.   

Current Speciality Total Expected sales units 60,000 5000 65000 Revenue = Sales X price 750,000 55,000 805,000

variable cost(3+1.5+0.4+1.1) X 60,000

(3+ 1.5+0.4+1.3) x 5000

360,000 31,000 391000 Contribution margin 390,000 24000 414000 Fixed costs (216000 + 79525) 295525 15000 310525 Operating income 94475 9000 103475

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.