ALASKA MANUFACTURING produces widgets, which they sell for $5 each. They are preparing their budget for production costs for February 2017. Actual production costs in the previous month, January 2017, were as follows, when production was 20,000 widgets:

Raw materials (variable)				$ 50,000
Labor costs (variable)				20,000
Factory rent (fixed)				12,000
Equipment depreciation (fixed)				16,000
Other production costs (fixed)				2,000
	Total			$ 100,000

REQUIRED:

1. What was the prime cost for January, both total AND per-unit?

2. What was the conversion cost of January, both total AND per-unit?

3. ALASKA anticipates that production will rise to 25,000 widgets in February. Using the above numbers as your guide, what would be the expected production cost for February?

4. Does your February budget suggest that additional workers will be needed? Assuming the wage rate is $20 per hour, how many additional labor hours are indicated for February?

5. What was the actual production cost per unit for the January? What is the expected production cost for February? Explain WHY the total production cost per unit changed in the direction that it did.

6. What is the formula that you could use to determine the total production cost for ALASKA for any particular month?

7. What formula could you use to determine the profit for any particular month? What is the anticipated profit for February? (Assume that there are no other expenses other than those mentioned above.)

8. What is the formula that you could use to determine the total production cost for ALASKA for the year?

9. What is the formula that you could use to determine the total production cost for ALASKA for the year?

For questions 10) through 12), assume now that ALASKA is producing and selling 300,000 widgets annually at a selling price of $5.00 per unit. The company is exploring the effects of possibly lowering their list price to $4.60 per unit and feel that this would increase demand for their widgets by 50,000, to a level of 350,000 per year.

10. Which of the costs listed above would be relevant in making this decision? Which would be irrelevant? WHY?

11. What are the incremental (additional) revenues (the benefits) expected from the price reduction?

12. What are the incremental (additional) costs (costs) of producing the extra widgets?

13. What is the incremental (additional) income (loss) expected from the price reduction? Should ALASKA lower their list price of widgets?