Question

travel des produce back and endors weselnederow The cost of one of Variable guerre Pred overhead (13,853, per year, 45, nits per 6.10 542.20 Total Riverside Discount can office store d verde verdens offered t o er would retired to b e These laborcov and 100 ble overhead cost A n n agregarded 45000 fe would be the m o udbe $70.400 dwu to colyte 22.000 besor o speck There g price is $6 The specie woud 0 430 0 0 e cy to reduce the 22.000 units wout e t verdere m 2000 Required Pre schedule to show the act of s verder a n reformeye d erwould maker s. Considering only profit de re

Answer 1

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Fairmount Travel Gear		Amount $
Ans a	A	B	C=A+B
Particulars	Current cost	Cost increase by	Revised cost
Materials	18.30	4.30	22.60
Labor	12.30	1.80	14.10
Variable Overhead	5.30	0.80	6.10
Total cost per unit			42.80	D
Number of bags			22,000.00	E
Total variable cost			941,600.00	F=D*E
Equipment rental			70,400.00	G
Total cost			1,012,000.00	H=F+G
Sell price		45.00		I
Sale Value			990,000.00	J=I*E
Net Loss			22,000.00	K=H-I
Fixed costs are sunk costs and not relevant for this offer so not considered.
Workings
Total cost of 453,000 units.	Per Unit	Amount
Units	453,000.00
Sales revenue	63.00	28,539,000.00	This is 453,000 units $ sell price per unit i.e. $ 63.
Materials	18.30	8,289,900.00	This is 453,000 units $ Materials cost per unit i.e. $ 18.30.
Labor	12.30	5,571,900.00	This is 453,000 units $ Labor cost per unit i.e. $ 12.30.
Variable Overhead	5.30	2,400,900.00	This is 453,000 units $ Variable Overhead cost per unit i.e. $ 5.30.
Total cost of additional 22,000 units.	Per Unit	Amount
Units	22,000.00
Sales revenue	45.00	990,000.00	This is 22,000 units $ sell price per unit i.e. $ 45.
Materials	22.60	497,200.00	This is 22,000 units $ Materials cost per unit i.e. $ 22.60.
Labor	14.10	310,200.00	This is 22,000 units $ Labor cost per unit i.e. $ 14.10.
Variable Overhead	6.10	134,200.00	This is 22,000 units $ Variable Overhead cost per unit i.e. $ 6.10.
Total cost of 475,000 units.	Amount
Units	475,000.00		This is sum of 453,000 units and 22,000 units.
Sales revenue	29,529,000.00		This is sum of sales revenue of 453,000 units and 22,000 units.
Materials	8,787,100.00		This is sum of Materials cost of 453,000 units and 22,000 units.
Labor	5,882,100.00		This is sum of Labor cost of 453,000 units and 22,000 units.
Variable Overhead	2,535,100.00		This is sum of Variable Overhead cost of 453,000 units and 22,000 units.
Income Statement
	453,000 units	475,000 units	Difference
Sales revenue	28,539,000.00	29,529,000.00	990,000.00	See Workings above
Less: Variable costs
Materials	8,289,900.00	8,787,100.00	497,200.00	See Workings above
Labor	5,571,900.00	5,882,100.00	310,200.00	See Workings above
Variable Overhead	2,400,900.00	2,535,100.00	134,200.00	See Workings above
Total Variable costs	16,262,700.00	17,204,300.00	941,600.00	See Workings above
Contribution	12,276,300.00	12,324,700.00	48,400.00	See Workings above
Less: Fixed costs
Fixed Overhead	2,853,900.00	2,853,900.00	-	This is already given in the question.
Equipment rental		70,400.00	70,400.00	This is already given in the question.
Total Fixed costs	2,853,900.00	2,924,300.00	70,400.00
Net profit	9,422,400.00	9,400,400.00	(22,000.00)
Ans b
Fairmount Travel Gear will lose $22,000 if it accepts the offer. So the offer should not be accepted.
Ans c
Total cost			1,012,000.00
Sell Price			45.00
Number of units			22,488.89
So minimum quantity should be 22,489 bags to attain breakeven point. Any quantity above 22,489 bags will give profits.