Question

Answer the following questions as required. SHOW ALL WORK! 1. Rays Corporation has received a request for a special order of 8.000 units of product A for $34.20 each. The normal selling price of this product is $35.70 each, but the units would need to be modified slightly for the customer. The normal unit product cost of product A is computed as follows: Direct Materials 11.60 Direct Labor 2.20 Variable Manufacturing Overhead 7.10 Fixed Manufacturing Overhead 2.90 Unit Product Cost 23.80 Direct labor is a variable cost. The special order would have no effect on the company's total fixed manufacturing overhead costs. The customer would like some modifications made to product A that would increase the variable costs by $6.30 per unit and that would require a one-time investment of $40,000 in special molds that would have no salvage value. This special order would have no effect on the company's other sales. The company has ample spare capacity for producing the special order. Required: Determine the effect on the company's total net operating income of accepting the special order. 2. Glowster Company makes three products in a single facility. These products have the following unit product costs: Products Direct Materials 13.50 16.20 Direct Labor 14.10 18.00 Variable Manufacturing Overhead 3.10 3.60 Fixed Manufacturing Overhead 11.60 16.60 Unit Product Cost 42.30 54.40 Additional data concerning these products are listed below: Products 17.60 18.50 3.60 8.50 48.20 Mixing minutes per unit 3.30 3.80 5.10 Selling price per unit 59.30 73.20 64.60 Variable selling cost per unit 1.90 2.20 1.50 Monthly demand in units 1,000 1,000 4,000 The mixing machines are potentially the constraint in the production facility. A total of 27,400 minutes are available per month on these machines. Direct labor is a variable cost in this company. Required: a. How many minutes of mixing machine time would be required to satisfy demand for all three products? b. How much of each product should be produced to maximize net operating income? (Round off to the nearest whole unit.) c. Up to how much should the company be willing to pay for one additional hour of mixing machine time if the company has made the best use of the existing mixing machine capacity? (Round off to the nearest whole cent.)

Answer 1

Dear Student,

As per the HOMEWORKLIB POLICY, only the first question should be answered. Kindly take note of it.

Rays company

Impact on profit = revenues – (variable cost + avoidable fixed cost +opportunity cost)

Incremental net operating income= ((34.20-(23.80-2.90+6.30))*8000)-40000 = $16000