A company produces two products. Product 1 sells for $125 and Product 2 sells for $85. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 101,000 units of each product Its average cost per unit for each product at this level of activity are given below: Direet materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit Product Product $30 $12 21 20 6 12 19 13 . 16 11 $105 $77 The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are unavoidable and have been allocated to products based on sales dollars. Consider each of the following questions separately 1. The company expects to produce and sell 81000 units of Product during the current year. One of the company's sales representatives has found a new customer who wants to buy 11000 additional units of Product for a price of $84 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order? Financial advantage A company produces two products Product 1 sells for $125 and Product 2 sells for $85. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 101,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit Product 1 Product $ 30 $12 21 20 6 17 19 13 9 16 11 $105 $77 The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are unavoldable and have been allocated to products based on sales dollars. Consider each of the following questions separately. 3. Assume the company normally produces and sells 91,000 unit of Product 2 per year. What is the financial advantage (disadvantage of discontinuing Product 2? Financial (disadvantage) A company produces two products. Product 1 sells for $125 and Product 2 sells for $85. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 101,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Product 1 Product Direct materials $12 Variable manufacturing overhead Traceable fixed manufacturing overbead 17 Variable selling expenses Cannon fixed expenses Total cost per unit $105 $77 Direct labor $ 30 21 B 20 6 19 13 16 9 11 The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are unavoidable and have been allocated to products based on sales dollars. Consider each of the following questions separately 5. The company expects to produce and sell 81,000 units of Product 1 during the current year. A supplier has offered to manufacture and deliver 81,000 units for a price of $84 per unit. What is the financial advantage (disadvantage) of buying 81,000 Product units from the supplier instead of making those units? Financial (disadvantage)
