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Barker Company produces and sells a single product, the Zet. The company normally produces and sells 80,000 Zets each year at a selling price of

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Barker Company produces and sells a single product, the Zet. The company normally produces and sells 80,000 Zets each year at a selling price of $40 per unit. company's unit costs at this level of activity are: The $9.50 10.00 Direct Materials Direct Labor 2.80 Variable Overhead 5.00 Fixed Overhead 1.70 Variable Selling Expenses Fixed Selling Expenses Total Cost per Unit 4.50 $33.50 Assume Barker has sufficient capacity to produce 100,000 Zets each year without any increase in fixed production costs. The company could increase unit sales by 25% if it were willing to undertake an advertising campaign that will increase its fixed selling expenses by $150,000. (13) Barker: (a) should spend the additional $150,000 because the increase in total income would be $170,000 (b) should spend the additional $150,000 because, at $1.50 per unit spread over 100,000 units, the additional cost yields a total unit cost of $35.00, which is less than the $40.00 per unit selling price (c) should spend the additional $150,000 the increase in total income would be $90,000 (d) should not spend the additional $150,000 because total income would decrease by $20,000 (e) will be indifferent between selling the additional Zets and maintaining production and sales at current levels

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