Problem $6-18(60$ minutes$)$

$1.$ Selling price per unit $

Variable expenses per unit $18*$

Contribution margin per unit $$\_\_$

$*$$$10\mathrm{.}00+$ $$4\mathrm{.}50+$ $$2\mathrm{.}30+$ $$1\mathrm{.}20=$ $$18\mathrm{.}00$

Increased sales in units $(60,000$ units $\backslash$times $25\%)15,000$

Contribution margin per unit $\backslash$times $$$$\_\_$

Incremental contribution margin $$210,000$

Less added fixed selling expenses $\_\_\_\_\_\_$

Financial advantage of the investment $$\_\_\_\_\_\_\_$

Yes, the increase in fixed selling expenses would be justified.

$2.$ Variable manufacturing cost per unit $$16\mathrm{.}80*$

Import duties per unit

Permits and licenses $($$$9,000-$: $20,000$ units$)$

Shipping cost per unit $\_\_\_\_$

Break$-$even price per unit $$\_\_\_\_$

$*$$$10+$ $$4\mathrm{.}50+$ $$2\mathrm{.}30=$ $$16\mathrm{.}80$

$3.$ The relevant cost is $$\_\_\_\_$ per unit, which is the variable selling expense per Dak. Because the irregular units have already been produced, all production costs $($including the variable production costs$)$ are sunk. The fixed selling expenses are not relevant because they will be incurred whether or not the irregular units are sold. Depending on how the irregular units are sold, the variable expense of $$\_\_\_\_$ per unit may not even be relevant. For example, the units may be disposed of through a liquidator without incurring the normal variable selling expense.

$4.$ If the plant operates at $30\%$ of normal levels, then only $3,000$ units will be produced and sold during the two$-$month period:

$60,000$ units per year $\backslash$times $2/12$ years $=10,000$ units

$10,000$ units $\backslash$times $30\%=3,000$ units produced and sold

Problem $6-18($continued$)$

Given this information, the simplest approach to solving $4$a$,4$b$,$ and $4$c is:

Contribution margin lost if the plant is closed $(3,000$ units $\backslash$times $$14$ per unit$)$ $$(42,000)$

Fixed costs that can be avoided if the plant is closed:

Fixed manufacturing overhead cost $$\_\_\_\_\_$

Fixed selling cost $\_\_\_\_\_\_\_\_$

Financial $($disadvantage$)$ of closing the plant $$(\_\_\_\_\_)$

Some students will take a longer approach such as that shown below:

Continue to Operate Close the Plant

Sales $(3,000$ units $\backslash$times $$32$ per unit$)$ $ $96,000$ $ $0$

Variable expenses $(3,000$ units $\backslash$times $$18$ per unit$)54,0000$

Contribution margin $42,0000$

Fixed expenses:

Fixed manufacturing overhead cost:

$$300,000\backslash$times $2/1250,000$

$$300,000\backslash$times $2/12\backslash$times $60\%$

Fixed selling expense:

$$210,000\backslash$times $2/1235,000$

$$210,000\backslash$times $2/12\backslash$times $80\%\_\_\_\_$

Total fixed expenses $85,000\_\_\_$

Net operating income $($loss$)$ $$(43,000)$ $$(\_\_\_\_)$

$4$d$.$ The company should not close the plant for two months because it will be $$\_\_\_\_\_\_$ worse off if it closes.

Problem $6-18($continued$)$

$5.$ The relevant costs are those that can be avoided by purchasing from the outside supplier. These costs are:

Variable manufacturing cost per unit $$16\mathrm{.}80$

Fixed manufacturing overhead cost $($$$300,000\backslash$times $75\%=$ $$225,000$; $$225,000-$: $60,000$ units$)3\mathrm{.}75$

Variable selling expense $\_\_\_\_$

Total avoidable cost per unit $$\_\_\_\_$

To be acceptable, the outside supplier$$s price must be less than $$\_\_\_\_$ per unit.