Section VI Please answer the following questions. a. Lattimer Company had the following results of operations for the past year: Sales (15,000 units at $12) $180,000 Variable manufacturing costs $97,500 Fixed manufacturing costs 21,000 Selling and administrative expenses (all fixed) 36,000 (154,500) Operating income $25,500 A foreign company whose sales will not affect Lattimer’s market offers to buy 5,000 units at $7.50 per unit. In addition to existing costs, selling these units would add a $0.25 selling cost for export fees. If Lattimer accepts this additional business, the special order will yield a: $2,000 loss. $8,250 loss. $3,750 profit. $3,250 loss. $5,000 profit. b. Ahngram Corp. has 1,000 defective units of a product that cost $3 per unit in direct costs and $6.50 per unit in indirect cost when produced last year. The units can be sold as scrap for $4 per unit or reworked at an additional cost of $2.50 and sold at full price of $12. The incremental net income (loss) from the choice of reworking the units would be: $5,500. $0. ($2,500). $9,500. $2,500. c. Chang Industries has 2,000 defective units of product that have already cost $14 each to produce. A salvage company will purchase the defective units as they are for $5 each. Chang’s production manager reports that the defects can be corrected for $6 per unit, enabling them to be sold at their regular market price of $21. The incremental income or loss on reworking the units is: $20,000 loss. $20,000 income. $12,000 loss. $32,000 income. $30,000 income. d. Chang Industries has 2,000 defective units of product that have already cost $14 each to produce. A salvage company will purchase the defective units as they are for $5 each. Chang’s production manager reports that the defects can be corrected for $6 per unit, enabling them to be sold at their regular market price of $21. Chang should: Throw the units away. Sell the units to the salvage company for $5 per unit. Sell the units as they are because repairing them will cause their total cost to exceed their selling price. Sell 1,000 units to the salvage company and repair the remainder. Correct the defects and sell the units at the regular price.

    Expert Counter-argument

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    General guidance

    Concepts and reason

    Variable absorbing: Alterable absorbing is individual of the absorbing methods that tabulate only alterable absorbs to the list of the effect. The alter in roll of output accomplish suit alter in alterable absorbs. This is too disclosed as direct absorbing. It is divergent from aridity absorbing, where the unroving absorbs are too fascinated to the aces as per their usage. Fundamentals

    Variable absorb: This absorb is established on the roll of effection. Aggregate alterable costs alters with the alter in the sum of aces of effection notwithstanding changeable absorb per ace trash immutable. It is promptly proportional to the sum of commodities performed and sold. It is deducted from the sales to attain at the donation.

    Incremental Pay: The growth in pay with honor to the appended sum of aces amid loving period of duration is termed as incremental pay. The incremental pay is the object issue of sales estimate short appended absorb to rework and turn pay elapsed.

    Reworking absorbs: Absorbs incurred to punish or to rework the imperfect aces issueing in an growth of pay to the association. Show short First Step | All Steps | Counter-argument Only

    Step-by-step

    Step 1 of 3

    a.

    Calculate the advantage as shown below:

    Profit=Sales−Totalcost=($5,000units×$7.5)−$33,750=$3,750\begin{array}{c}\\{\rm{Profit = Sales – Aggregate absorb}}\\\\{\rm{ = }}\left( {\$ 5,000{\rm{ aces }} \times {\rm{ \$ 7}}{\rm{.5}}} \right) – \$ 33,750\\\\ = {\rm{ \$ 3,750}}\\\end{array}Profit=Sales−Totalcost=($5,000units×$7.5)−$33,750=$3,750​

    Working notes:

    Variablecostperunit=TotalvariablecostTotalnumberofunitsproduced=$97,50015,000=$6.5perunit.\begin{array}{c}\\{\rm{Variable absorb per ace = }}\frac{{{\rm{Aggregate alterable absorb}}}}{{{\rm{Aggregate sum of aces performed}}}}\\\\ = \frac{{\$ 97,500}}{{15,000}}\\\\ = \$ 6.5{\rm{ per ace}}{\rm{.}}\\\end{array}Variablecostperunit=TotalnumberofunitsproducedTotalvariablecost​=15,000

    $97,500​=$6.5perunit.​

    Totalcostfor5,000untis=($6.5×5,000units)+($0.25×5,000units)=$33,750.\begin{array}{c}\\{\rm{Total absorb coercion 5,000 untis = (\$ 6}}{\rm{.5}} \times {\rm{5,000 aces) + (}}\$ {\rm{0}}{\rm{.25}} \times {\rm{5,000 aces)}}\\\\ = \$ 33,750.\\\end{array}Totalcostfor5,000untis=($6.5×5,000units)+($0.25×5,000units)=$33,750.​

    Therefore, the advantage from the extraordinary prescribe is.Part a

    The advantage from the extraordinary prescribe is $3,750.
    Explanation | Hint coercion proximate step

    Total absorb is fitted by adding the alterable and unroving absorbs. First, calculate alterable absorb per ace by dividing alterable manufacturing costs by sum of aces coercion the elapsed year.

    Then, alterable absorb coercion 5,000 aces is fitted by multiplying alterable absorb per ace with extraordinary prescribe 5,000 aces. Calculate aggregate selling absorb by multiplying selling absorb per ace with extraordinary prescribe 5,000 aces. Add aggregate alterable absorb and aggregate selling absorb to attain aggregate absorb coercion 5,000 aces.

    Calculate advantage on extraordinary prescribe by deducting the aggregate absorb incurred on 5,000 units from aggregate sales on 5,000 aces. Aggregate sales on 5,000 aces is fitted by multiplying selling consume of $7.50 per ace with 5,000 units.

    Step 2 of 3

    b.

    Calculate the incremental advantage as shown below:

    Therefore, the incremental advantage is.Part b

    The incremental advantage is $5,500.
    Explanation | Hint coercion proximate step

    Defective aces are sold at liberal consume of $12 per ace by incurring reworking costs of $2.50 per ace. Due to reworking the aces, it elapsed wealth to be earned if sold as piece which is considered as turn absorb. Incremental advantage is fitted by deducting the appended absorb to rework and the turn pay elapsed coercion the loving 1,000 aces from the sales estimate consumed at periodical bargain consume issueing in an pay of $5,500.

    Step 3 of 3

    c.

    Calculate the incremental advantage as shown below:

    Therefore, the incremental advantage is.Part c

    The incremental advantage is $20,000.
    Explanation

    Defective aces are sold at liberal consume of $21 per ace by incurring reworking costs of $6 per ace. Due to reworking the aces, it elapsed wealth to be earned if purchased by S association which is considered as turn cost. Incremental advantage is fitted by deducting the appended absorb to rework and the turn pay elapsed coercion the loving 2,000 aces from the sales estimate consumed at periodical bargain consume issueing in an pay of $20,000.

    Answer

    Part a

    The advantage from the extraordinary prescribe is $3,750. Part b

    The incremental advantage is $5,500. Part c

    The incremental advantage is $20,000.