Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

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 1Product 2Direct materials$30$12Direct labor2120Variable manufacturing overhead86Traceable fixed manufacturing overhead1719Variable selling expenses139Common fixed expenses1611Total cost per unit$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.

4. Assume the company normally produces and sells 41,000 units of Product 2 per year. What is the financial advantage (disadvantage) of discontinuing Product 2?

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 1 units from the supplier instead of making those units?

6. Now assume the company expects to produce and sell 51,000 units of Product 1 during the current year. A supplier has offered to manufacture and deliver 51,000 units of Product 1 for a price of $84 per unit. What is the financial advantage (disadvantage) of buying 51,000 units from the supplier instead of making those units?

7. The company's customers will buy a maximum of 81,000 units of Product 1 and 61,000 units of Product 2. If there are only 161,000 pounds of raw material available for production, how many units of each product should be produced to maximize profits?

Please can I have the formula. Thank you.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Advanced Financial Accounting An IFRS Standards Approach

Authors: Pearl Tan, Chu Yeong Lim, Ee Wen Kuah

4th Edition

9789814821278, 9814821276

More Books

Students also viewed these Accounting questions

Question

5. How can I help others in the network achieve their goals?

Answered: 1 week ago