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Special order analysis. Framar inc. manufactures automation machinery according to customer specifications. The company is relatively new and has grown each year. Framar operated at
Special order analysis. Framar inc. manufactures automation machinery according to customer specifications. The company is relatively new and has grown each year. Framar operated at about 75% of practical capacity during its most recent fiscal year ended September 30, with operating results as follows: $25,000 2500 $22.500 $ 8.000 7,500 Sales Loss sales commissions.. Net sales Expenses Direct materials Direct labor Factory overhead variable: Supplies Indirect labor Power Factory overhead-fixed: Supervision Depreciation Corporation administration Total expense Income before income tax Income tax (40%) Net income $ 625 1,500 125 2.250 $ 500 1.000 1.500 750 $18.000 $ 4,500 1.800 $ 2.700 Framar management has developed a pricing formula based on current operating costs, which are expected to prevail for the next year. This formula was used in developing the following bid for APA Inc: Direct materials cost $ 29,200 Direct labor cost 56,000 Factory overhead calculated at 50% of direct labor 28.000 Corporate overhead calculated at 10% of direct labor 5,800 Total cost, excluding sales commission 5118.800 Add 25% for profit and tax 29,700 Suggested price (with profit) before sales commission $149.500 Suggested total price (suggested price divided by 9 to adjust for 10% sales commission) $165.000 Required: (1) Compute the impact on net income if APA accepts the bid. (2) Determine the suggested decision if APA is willing to pay only $127,000. 3) Calculate the lowest price Framar can quote without reducing current net income. (4) Determine the effect on the most recent fiscal year's profit if all work were done at prices similar to APA's $127,000 counteroffer.ICMA adapted)
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