Question
I need detailed help with steps on how to solve, please outline everything and explain where each number comes from. Be ready for follow up
I need detailed help with steps on how to solve, please outline everything and explain where each number comes from. Be ready for follow up questions on your work.
Barker Company has a single product called a Zet. The company normally produces 80,000 Zets each year. The company's unit costs at this level of activity are given below :
Direct Materials : $9.50
Direct Labor : $10.00
Variable Manufacturing Overhead : $2.80
Fixed Manufacturing Overhead : $5.00 ($400,000 total)
Variable Selling Expenses : $1.70
Fixed Selling Expenses : $4.50 ($360,000 total)
Total Cost Per Unit : $33.50
One of the materials used in the production of Zets is obtained from a foreign supplier. Civil unrest in the supplier's country has caused a cutoff in material shipments that is expected to last for three months. Barker Company has enough material on hand to operate at 90% of normal levels for the three month period. As an alternative, the company could close down plant entirely for three months. Closing the plant would reduce fixed manufacturing overhead cost by 30% during the three month period and the fixed selling expenses would continue at 2/3 of their normal level.
Question : What is the selling price of Zet that would make the company indifferent between closing or not closing plant for three month period?
A) $35.50 B) $43.50 C) $24.00 D) $31.50 E) None
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started