Reference no: EM1395614
Q. Larimer Industries is a division of Widgetco, a diversified manufacturer whose divisions are profit centers. Larimer makes a single product, X47, in its plant, which has a capacity of 18,000 units/month. At the normal volume of 10,000 units/month, X47 has a unit cost of $750, consisting of: direct materials, $260; direct labour, $180; overhead, $310. Manufacturing overhead has both fixed also variable components. Fixed overhead is applied at a rate of 150% of direct labour cost. Fixed selling also administrative costs are $620,000/month. Several other companies also make an equivalent product. The market price is normally $900/unit.
a. Prepare a monthly income statement for Larimer Industries at a sales volume of 10,000 units, using the contribution format. Note: which there is no interest or income tax expense, because Larimer is simply a division of the corporation.
b. Illustrate what is the breakeven level of sales in units per month (round to the nearest whole unit)?
c. The marketing department has proposed an ad campaign for next year which will cost $400,000. Explain how many additional units must be sold at the regular price in order for this campaign to yield an incremental profit of $150,000 (round to the nearest whole unit)?
d. Windsor Division of Widgetco is developing a new product for which X47 would be an input. Illustrate what factors would influence the managers of Larimer also Windsor as they negotiate a transfer price?
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