Reference no: EM131891105

Question - Beckstead Company makes a single product called a widget. The company normally produces and sells 80,000 widgets each year at a selling price of $40 per unit. The company's unit cost at this level of activity is given below:

Direct materials $ 9.50

Direct labor 10.00

Variable manufacturing overhead 2.80

Fixed manufacturing overhead 5.00 ($400,000 total)

Variable selling expenses 1.70

Fixed selling expenses 4.50 ($360,000 total)

Total cost per unit $33.50

Required: Assume that Beckstead Company has sufficient capacity to produce 100,000 widgets each year without any increase in fixed manufacturing overhead costs. The company could increase sales by 25% above the present 80,000 units each year if it were willing to increase the fixed selling expenses by $150,000. Would the increased fixed selling expenses be justified?