Reference no: EM132598407

Altoona Valve Company's planned production for the year just ended was 30,000 units. This production level was achieved, and 32,000 units were sold. Other data follow:

Direct material used $ 400,000

Direct labor incurred 200,000

Fixed manufacturing overhead 270,000

Variable manufacturing overhead 150,000

Fixed selling and administrative expenses 225,000

Variable selling and administrative expenses 67,500

Finished-goods inventory, January 1 4,000 units

The cost per unit remained the same in the current year as in the previous year. There were no work-in process inventories at the beginning or end of the year.

Required:

Question 1. What would be Altoona Valve Company's finished-goods inventory cost on December 31 under the variable-costing method?

Question 2. Which costing method, absorption or variable costing, would show a higher operating income for the year? By what amount?

Question 3. Using the information for the current year, compute how many units to be sold to achieve the break-even point if the selling price is $50 per unit. Why the management need this kind of information?

Question 4. If the company expects to have an increase in the variable manufacturing costs of 10% next year, what the management should do to be able to have the same operating profit as this year. Note: you can assume if you change the selling price, the other remaining variables stay the same, and vice versa. Give your analysis for each alternative and the arguments that support each of them.

Question 5. Please refer and use to the original data for the current year. The company just received a special order from one customer that want to buy 10.000 units of product. With this special order, the company can save their variable selling and administrative cost by 20%, and the customer will reimburse the all direct material costs. The customer ask for 50% discount of the original selling price. Please recommend whether this offer should be accepted or rejected. The company has no idle capacity. What strategic factors you should consider to support your decision?