Question
Wilder Inc. manufactures a product that contains a small computer chip. The company has always purchased this computer chip from a supplier for $95 each.
Wilder Inc. manufactures a product that contains a small computer chip. The company has always purchased this computer chip from a supplier for $95 each. Wilder recently upgraded its own manufacturing capabilities and now has enough excess capacity (including trained workers) to begin manufacturing the computer chip instead of buying it. The company prepared the following per unit cost projections of making the computer chip, assuming that overhead is allocated to the part at the normal predetermined overhead rate of 125% of direct labor cost.
Direct materials | $36.00 |
Direct labor | 45.00 |
Overhead (fixed and variable) | 56.25
|
Total | $137.25
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The volume of output to produce the computer chip will not require any incremental fixed overhead. Incremental variable overhead cost is $23 per computer chip. What is the effect on income if Wilder decides to make the computer chips? |
Income will increase by $42.25 per unit. | |
Income will increase by $14.00 per unit. | |
Income will decrease by $9.00 per unit. | |
Income will decrease by $42.25 per unit. | |
Income will increase by $9.00 per unit. |
Teague Plumbing has received a special one-time order for 3,300 toilets (units) at $84 per unit. Teague currently produces and sells 21,000 units at $109 each. This level represents 75% of its capacity. Production costs for these units are $84 per unit, which includes $79 variable cost and $10 fixed cost. To produce the special order, shipping costs of $20,000 will be incurred. Management expects no other changes in costs as a result of the additional production.
If Teague wishes to earn $2,150 on the special order, the size of the order would need to be: |
8,860 units. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
660 units. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
1,075 units. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2,215 units. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
4,430 units. A company expects to produce and sell 8,600 units of a single product. The following additional company information is available:
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