X Question 9. The Varone Company makes a single product called a Hom. The cmpany
ID: 2599873 • Letter: X
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X Question 9. The Varone Company makes a single product called a Hom. The cmpany has the caqpcity s produce 43,000 Homs per year. Per unit costs to produce and sell one Fom at hat acinity lee Direct materials - Direct labor Variable manufacturing overhead.. - Fixed manufacturing overhead s20 $10 $5 $7 $8 $2 Fixed selling expense.. The regular selling price for one Hom is $60. A special order has been neceived rom the Fam Company to purchase 8,000 Homs next year. For this special ordier, the vartiabie seiling openne wondi be reduced by 20%. However, Varone would have to purchase a spedalized machine xan Fairview name on each Hom in the special order. This machine would cast S1Z.0nd and twonid tare no use after the special order was filled yme dhe If Varone can expect to sell 34,000 Homs next year through regular channels at whur special ante price from Fairview should Varone be economically indifferent betwen either accenting ar ner accepting this special order? (Choose the closest answer) A. $42.50 B. $43.70 C. $39.90 D. $42.90 E. $41.40 10. The following data are for the month of July for the Bottles Company, a maker of beets Sales (in Selling Price per unit Variable Cost per unit Total Fixed Costs 0,000 585 560 $129.000 units S36 Set 133.900 What is the company's flexible budget net operating income (choose the closest answer A. $165,000 B. $171,000 C. $157.000 D. $153,000 E. $169,000Explanation / Answer
9.
Company V's full capacity is 43,000 units. However, it is producing and selling only 34,000 units through regular channel. Excess capacity is available with Company V for 9,000 units. Therefore, if the special order of 8,000 units is accepted by Company V, there would be no effect of its fixed costs.
Thus, the cost of producing one unit for the special order will include only the variable costs and the cost of the specialized machine per unit.
Cost of one unit for special order
= Direct materials + Direct labor + Variable manufacturing overhead + Variable selling expense + Cost of specialized machine per unit
= $20 + $10 + $5 + ($8 x 80%) + ($12,000/8,000 units)
= $42.90
The cost of producing one unit for the special order is $42.90. Therefore, if the special order price is equal to $42.90, Company V would neither earn any profit nor incurr any loss by accepting the special order.
Thus, when the special order price is $42.90, Company V would be indifferent between accepting or not accepting the special order.
The correct answer is D.
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