Question

Smith Co, received an offer to buy 3,800 amits of ins prodect for 57.50 pc.unit, Swith Co norally prodwces 12,000 units but ontly plans to proce ad sell 8,0o0 units in e emine year The nomal sales price is S12 26. per unit. Unit cost info is: Direct materials Direct labor Variable overhead Fixed overhead $2.00 $3.10 $1.80 $2.00 Ir Smith Co. accepts the order, no fised manufacturing activities will be affected. Should Smith Co. wccept the order? No, because income will decrease by $2,280 Yes, because income will increase by $5,320 No, because income will decrease by S5,320 e. a Yes, because income will increase by d. b. $2,280 27. Refer to question 26. Smith Co.'s warehouse distribution center is operating at full capacity and would have to add capacity costing $1,000 for every 5,000 units to be packed and shipped. Should Smith Co. accept the special order? Yes, because income would increase by $6,320 No, because income would decrease by $6,320 No, because income would decrease by $3,280 d. Yes, because income would increase by $1,280 с. a. b. 28. A company produces two kinds of can openers: one with longer handles and one with shorter handles. The longer opener uses better materials and has a better design for hand support. During the past year, 200,000 shorter openers and 50,000 longer openers were produced and sold. Fixed costs amount to S1,000,000. If the shorter openers were dropped from production, $360,000 of the fixed costs would be avoided. If the longer openers were dropped, $180,000 of the fixed costs would be avoided. Longer $172 Shorter Variable expenses/unit Sales price/unit $80 $180 $88 The contribution margin of the shorter and longer can openers, respectively is a. $400,000/S1,600,000 c. $1,600,000/$8,600,000 d. $1,600,000/$400,000 b. $1,240,000/220,000 29. If the company stops producing the longer opener, what will be the effect on the company's income? Decrease by $400,000 b. Decrease by $220,000 Decrease by $1,600,000 Decrease by $1,240,000 с. а. d.

Answer 1

1.Smith co. has an additional capacity for new order. it does not have to sacrifice its current demand to fulfill special order

fixed cost will not change with acceptance of new order so it is not relevant

incremental cost of new order

material	2
labor	3.10
variable OH	1.8
Total cost	6.9

sale =7.50

profit = 7.5-6.9

=0.6 per unit

total increase =3800*0.6

=2280$

ANswer D

2.if additional 1000$ is required than

New income Would be = 2280-1000

=1280$ however it is still profitablr

Answer D

3.contribution margin = sales -variable

	shorter	longer
sales	88	180
variable	80	172
contribution margin per unit	8	8
total units	200000	50000
contribution margin in Total	1600000[200000*8]	400000[50000*8]

Answer D 1600000/400000

4.

current profit

	Total
contribution margin	2,000,000	[1600000+400000]
less: fixed cost	1,000,000
net profit	1,000,000	[2,000,000-1,000,000]

i longer is dropped

	short
contribution margin	1,600,000	[1600000+400000]
less: fixed cost	820,000	[1,000,000-180,000]
net profit	780,000	[1,600,000-820,000]

profit reduced from 1,000,000 to 780,000 by 220000$[1000000-780000]

answer B