Reference no: EM132931047

Question -

Q1. A company produces two products. Product 1 sells for $125 and Product 2 sells for $85. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 101,000 units of each product. Its average cost per unit for each product at this level of activity are given below:

Product 1 Product 2

Direct materials $30 $12

Direct labor 21 20

Variable manufacturing overhead 8 6

Traceable fixed manufacturing overhead 17 19

Variable selling expenses 13 9

Common fixed expenses 16 11

Total cost per unit $105 $77

The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are unavoidable and have been allocated to products based on sales dollars. Consider each of the following questions separately.

-The company expects to produce and sell 81,000 units of Product 1 during the current year. One of the company's sales representatives has found a new customer who wants to buy 11,000 additional units of Product 1 for a price of $84 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order?

Q2. The company expects to produce and sell 91,000 units of Product 2 during the current year. One of the company's sales representatives has found a new customer who wants to buy 6,000 units of Product 2 for a price of $40 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order?

Q3. Assume the company normally produces and sells 91,000 unit of Product 2 per year. What is the financial advantage (disadvantage) of discontinuing Product 2?

Q4. Assume the company normally produces and sells 41,000 units of Product 2 per year. What is the financial advantage (disadvantage) of discontinuing Product 2?

Q5. The company expects to produce and sell 81,000 units of Product 1 during the current year. A supplier has offered to manufacture and deliver 81,000 units for a price of $84 per unit. What is the financial advantage (disadvantage) of buying 81,000 Product 1 units from the supplier instead of making those units?

Q6. Now assume the company expects to produce and sell 51,000 units of Product 1 during the current year. A supplier has offered to manufacture and deliver 51,000 units of Product 1 for a price of $84 per unit. What is the financial advantage (disadvantage) of buying 51,000 units from the supplier instead of making those units?

Q7. The company's customers will buy a maximum of 81,000 units of Product 1 and 61,000 units of Product 2. If there are only 161,000 pounds of raw material available for production, how many units of each product should be produced to maximize profits?