Question

Princeton Manufacturing Company summarizes the following total cost data for the month of March. Princeton has a normal capacity per month of 25,000 units of product that sell for $120 each. For the foreseeable future, sales volume should equal normal capacity of production.

Princeton Manufacturing Company summarizes the following total cost data for the month of March. Princeton has a normal capacity per month of 25,000 units of product that sell for $120 each. For the foreseeable future, sales volume should equal normal capacity of production. Direct material $885,000 Direct labor 495,000 Variable overhead 255,000 Fixed overhead (Note 1 420,000 Selling expense (Note 2 240,000 Administrative expense (fixed) 168,000 $2,463,000 Notes: 1. Beyond normal capacity, fixed overhead cost increases $19,050 for each 1,000 units or fraction thereof until a maximum capacity of 30,000 units is reached. 2. Selling expenses are a 5% sales commission plus shipping costs of $3.60 per unit. Using the information available, prepare a formula to estimate Princeton's total cost at various production volumes up to normal capacity. a. Total cost 588,000 X #of units. $ 75 b. Prove your answer in requirement (a) relative to the total cost figure for 25,000 units. Total cost Fixed cost Variable cost + $ 2,463,000 588,000 1,875,000 c. Calculate the planned total cost at 20,000 units. $2,088,000 d. If Princeton were operating at normal capacity and accepted an order for 500 more units, what would it have to charge for the order to earn a net income before income tax of $24 per unit on the new sale? x per unit Required selling price $

Answer 1

Answer

• Based on ‘correct requirement’ answer data:
  >Variable cost per unit = $ 75
  
• Net income required per unit = $ 24 per unit
• Increase in Fixed cost = $ 19,050
• Fixed cost per unit = $ 19,050/500 units
  = $ 38.10
• Answer:
  Requirement [d]
  Required selling price = $ 75 variable cost + $ 38.10 fixed cost + $ 24 net income
  = 75 + 38.10 + 24
  = $ 137.10
  Answer = $ 137.10 or $ 137