Question

been operating at 90% of capacity or 55,000 units in the current year. The company is currently selling its product at $35 a unit. Two customers have approached the company to request the purchase of the company's product as follows: Customer (A) requests to purchase 5,000 units of the corporation's product and offers $25 per unit. Customer (B) requests to purchase 10,000 units and offers $23 per unit. Per unit data for the new orders is summarized as follows: 25 Offer A Offer B Sales Revenues 23 Variable costs Direct materials 15.5 15.5 Direct labor Note: No additional fixed costs will be incurred from the additional production. Required: 1) (2 Marks) Determine the Corporation's results for the production level of 55,000 2) (3 Marks) Determine the results of the customers' orders for product (A) and disclose if the Corporation should accept the order or reject. 3) (3 Marks) Determine the results of the customer's order for product (B) and disclose if the Corporation should accept the order or reject it.

Answer 1

Solo Statement showing Corporation's Result for the Production level 55.000 Unit Particular's Amount Saulei Revenue $1925000 less. Variabile Costs - Direet Materials $(852,500) Direct labor $14.95,000) Contribution Margin $ 577,500 lexson Fixied Cose. NIL Olerating Income Kloss) $ 517,500 Working Note Sailes Revenue = Number of Unit Produced & Selling Price persuit 55,000 duit X $ 35 $ 1.925,000 Direct Materiaal = No. of unit produced & unit Cost - 55000 unit x $15.5 =$852,500 Direct labor. No. of vuil produced & unit Cast 55.000 units X $ 9 - $49 5,00D__ -

Sol, (2) Statement showing Result of Customer's (A) Order Particulars Amount Saulie's Revenue $125,000 lesso Variable Costoso . Direct Materiaal's $(77,500) Diceele labor $(45,000) - Courribution Margin $2,500 less, & fixed costs Oberating Income / (Loss) $2,500 NIL Decision on The Corporation should accept the Order of customer (Al, because it gives additional Profit of $2,500. Working Noter Sales Revenue = No. of unit produced & Selling forice permit = 5000 unit X $25 $125,000 Direct Materials = No. of unit producedx unillest - Sood unit x $15.5 - - $77,500 Direel labor = 5000 unit & $9 - $45,000

Sol.632 Statement showing Resull- of Customer (B) Order NIL Particular's Amount Sales Revenue $ 230,000 lesso Variable Costs :- Direet Matericul's $(155,000) A Direet labore $ (90,000) Contribution Margin $(15,000) less, o fixed lists Operating Income /(Loss) 1 $(15,000) Decision on The Corporation should reject the Order of - Customer (B), because gives nagative impact on Corporation's Net profit of $15,000. ie. loss of $15,000.

Werking Note :-(3) Saule's Revenue => - Number of vuit producedx Selling Price percen't - 10,000 unit X $23 $230,000 Direct Matericul's = No. of own't pooduared X Vuil lest z 10.000 wew'ta x $15.5 :: $155,000 Direct labor - No. of wait produced & unit Cost = loooouuit & $9 3 $90,000