Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

QUESTION 7 an organization toys for many shops. Due to its excess capacity, the company tries to start a new product line to manufacture a

QUESTION 7

  1. an organization toys for many shops. Due to its excess capacity, the company tries to start a new product line to manufacture a new toy car model. The company has gathered the following information on the product line from which the company can make 1,000 toy cars. For each toy car, the direct materials cost $60, direct labor costs $40, and total manufacturing overhead costs $20. Due to the excess capacity, producing the new toy car has no impact on fixed manufacturing overhead. However, a total of $10,000 fixed manufacturing overhead is absorbed by this new product line under the companys absorption costing system.

    1. What is total variable cost for producing each unit of toy car? (2 marks)
    2. The company is considering renting a new equipment to produce the new toy cars. The rental fee for producing 1,000 toy cars is $40,000. The new equipment will effectively reduce each toys direct labor cost by 30%, direct materials cost by 50%, and variable manufacturing overhead by 50%. Is it worthwhile for the company to rent the new equipment? (4 marks)
    3. The companys accountant has successfully traced many costs to each unit of the new toy car. She also wonders whether she should simply record all of the traceable costs as relevant costs. What is your opinion? Please support your answer with explanation. (4 marks)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Next Step Advanced Medical Coding And Auditing 2013

Authors: Carol J. Buck MS CPC CCS-P

1st Edition

1455744859, 978-1455744855

More Books

Students also viewed these Accounting questions

Question

2. Outline the functions of nonverbal communication

Answered: 1 week ago