Q3

Required information {The following information applies to the questions displayed below.) A company produces two products. Product 1 sells for $195 and Product 2 sells for $150. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 123.000 units of each product. Its average cost per unit for each product at this level of activity are given below: Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit Product 1 Product $ 40 $ 15 34 28 22 20 30 33 27 23 3e 25 $183 $144 The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are unavoidable and have been allocated to products based on sales dollars. Consider each of the following questions separately. Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit $40 34 22 30 22 30 $ 15 28 20 33 23 25 $144 $183 The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are unavoidable and have been allocated to products based on sales dollars. Consider each of the following questions separately 3. Assume the company normally produces and sells 105,000 unit of Product 2 per year. What is the financial advantage (disadvantage) of discontinuing Product 22 Answer is complete but not entirely correct. S 33 X Financial (disadvantage