Q1

Xenon Company manufactures 10,000 special gears for use in its annual production activities. The following costs are reported:

Direct materials, $3/gear

Direct labor, $4/gear

Variable Factory Overhead, $4.5/gear

Fixed Factory Overhead, $70,000

Parts Plus has offered to sell Xenon 10,000 of these gears for $17 per unit. If Xenon accepts the offer, $40,000 of the fixed factory overhead to special gears would be totally eliminated. What would be the effect on Xenon's income of accepting Parts Plus's offer?

Question 2 (1 point)

Zurich Inc. has determined the following cost data:

Variable Manufacturing, $15/unit

Fixed Manufacturing,$36,000

Variable Selling, $ 1/unit

Fixed Selling & Administrative, $18,000

The normal selling price is $25 per unit. The company has an opportunity to bid on a one-time only sale of 1,000 units. The variable selling costs would be replaced by a bulk shipping charge of $500. If excess capacity exists, and this order would not disturb regular sales, what would be the company's incremental cost per unit of accepting this special offer?