Phone Company has the following costs of producing and selling a cell phone when it produces and sells 100,000 phones per month:

Manufacturing cost

Direct materials $60.00 per unit

Direct labor $10.00 per unit

Variable manufacturing overhead cost $35.00 per unit

Fixed manufacturing overhead cost $20.00 per unit

Selling cost

Variable $20.00 per unit

Fixed $10.00 per unit

The selling price of a cell phone is $250 unless otherwise stated in the questions below. NOTE: You should assume that the situation described in each requirement below is independent of the situations in the other requirements. That is, when you answer one question, you should assume that the situations described in other questions have not occurred. You should also assume that Phone Company has manufacturing capacity that is sufficient to accommodate any opportunities for increased sales that might arise without the need to incur additional fixed costs.

REQUIRED

1. What is the unit cost of a cell phone on Phone Companys balance sheet (i.e., what is the value of inventory per unit for external reporting purposes)?

2. Phone Company currently produces and sells 100,000 cell phones each month. The companys marketing department estimates that sales volume would increase by 20% if the selling price of a phone is reduced to $210. If the selling price is reduced to $210 per unit, then what would be the companys total monthly operating income? (4 points)

3. Phone Company is deciding whether or not to accept a contract to provide Service Company with 8,000 cell phones per month in addition to Phone Co.s existing business. The contract would require Service Co. to pay Phone Co. for all manufacturing costs plus a fixed fee of $750,000 per month. Phone Co. would incur no variable selling costs related to this contract. By what amount would Phone Co.s monthly operating income increase or decrease as a result of accepting this contract? Assume that if Phone Co. accepts this contract, then it does not change the overhead allocation rate that it set at the beginning of the year. (5 points)

4. Phone Company has the opportunity to provide an organization with a one-time special order of 20,000 cell phones in addition to its existing business. The only variable selling cost associated with this order would be shipping costs of $10.00 per cell phone. Fixed selling costs for this order (in addition to Phone Companys existing fixed costs) would be $200,000. What selling price per unit would be required in order to earn $600,000 in incremental operating income from this order? (4 points)