Reference no: EM132528718

Ramallah Electronics manufactures two units, PB14.32 and YPB15.37 for which the following information is available:

Costs per unit                        PB14.32                           YPB15.37

Direct materials                     $ 450                          $ 550

Direct labor                             600                             750

Variable overhead                     750                            900

Fixed overhead                         600                           750

Total cost per unit                   $2,400                     $2,950

Price                                   $3,000                  $3,900

Units sold                                400                  200

The average wage rate is $20 per hour. The plant has a capacity of 21,000 direct labor hours, but current production uses only 19,500 direct labor hours.

Required:

Question 1. A new customer has offered to buy 40 units of YPB15.37 if the price is lowered to $3,000 per unit. How many direct labor hours are required to produce 40 units of YPB15.37? How much will the profit increase (or decrease) if Ramallah Electronics accepts this proposal? All other prices will remain the same.

Question 2. Suppose that the customer has instead offered to buy 60 units of YPB15.37 at $3,000 per unit. How much will the profits change if the order is accepted? Assume that the company cannot increase its production capacity to meet the extra demand.

Question 3. Answer the question in requirement (2), assuming instead that the plant can work overtime. Direct labor costs for the overtime production increase to $30 per hour, i.e., variable overhead cost for overtime production are 50% more than for normal production.