As the newly appointed Controller of Lynbrook, Inc., the CFO has asked you to evaluate

one of its primary products, called a Wren. The normal selling price for Wrens is $$32$ per

unit. Lynbrook normally produces and sells $60,000$ Wrens each year. Your staff

prepared the following unit costs at this level of activity:

Direct materials $$10\mathrm{.}00$

Direct labor $4\mathrm{.}50$

Variable manufacturing overhead $2\mathrm{.}30$

Fixed manufacturing overhead $5\mathrm{.}00($$$300,000$ total$)$

Variable selling expenses $1\mathrm{.}20$

Fixed selling expenses $3\mathrm{.}50($$$210,000$ total$)$

Total cost per unit $$26\mathrm{.}50$

Treat each of the following questions as an independent question.

Required:

$1.$ Assume that Lynbrook, Inc. has sufficient capacity to produce $90,000$ Wrens each

year without any increase in fixed manufacturing overhead costs. The company could

increase its unit sales by $25\%$ above the present $60,000$ units each year if it were willing

to increase the fixed selling expenses by $$80,000.$ What is the financial advantage

$($disadvantage$)$ of investing an additional $$80,000$ in fixed selling expenses? Would the

additional investment be justified?

$2.$ Assume again that Lynbrook has sufficient capacity to produce $90,000$ Wrens each

year. A customer in a foreign market wants to purchase $20,000$ Wrens. If Lynbrook, Inc.

accepts this order it would have to pay import duties on the Wrens of $$1\mathrm{.}70$ per unit and

an additional $$9,000$ for permits and licenses. The only selling costs that would be

associated with the order would be $$3\mathrm{.}20$ per unit shipping cost. What is the break$-$even

price per unit on this order?

$3.$ The company has $1,000$ Wrens on hand that have some irregularities and are

therefore considered to be $$seconds$.$ Due to the irregularities, it will be impossible to

sell these units at the normal price through regular distribution channels. What is the

unit cost figure that is relevant for setting a minimum selling price? Explain.

$($continued$)$

$4.$ Due to a strike in its supplier$$s plant, Lynbrook is unable to purchase more material to

produce Wrens. The strike is expected to last for two months. Lynbrook has enough

material on hand to operate at $30\%$ of normal levels for the two$-$month period. As an

alternative, Lynbrook could close its plant down entirely for the two months. If the plant

were closed, fixed manufacturing overhead costs would continue at $60\%$ of their normal

level during the two$-$month period and the fixed selling expenses would be reduced by

$20\%$ during the two$-$month period.

a$.$ How much total contribution margin will Lynbrook forgo if it closes the plant for

two months?

b$.$ How much total fixed cost will the company avoid if it closes the plant for two

months?

c$.$ What is the financial advantage $($disadvantage$)$ of closing the plant for the

two$-$month period?

d$.$ Should Lynbrook close the plant for two months?

$5.$ An outside manufacturer has offered to produce $60,000$ Wrens and ship them directly

to Lynbrook$$s customers. If Lynbrook accepts this offer, the facilities that it uses to

produce Wrens would be idle; however, fixed manufacturing overhead costs would be

reduced by $75\%.$ Because the outside manufacturer would pay for all shipping costs,

the variable selling expenses would be only two$-$thirds of their present amount. What is

Lynbrook$$s avoidable cost per unit that it should compare to the price quoted by the

outside manufacturer?