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.

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    General guidance

    Concepts and reason

    Variable requireing: Capricious requireing is single of the requireing methods that arrange only capricious requires to the catalogue of the issue. The qualify in raze of output succeed principle qualify in capricious requires. This is besides notorious as direct requireing. It is contrariant from parching requireing, where the unwandering requires are besides exhausted to the individuals as per their custom. Fundamentals

    Variable require: This require is inveterate on the raze of issueion. Entirety capricious costs qualifys with the qualify in the reckon of individuals of issueion save capricious require per individual recrement steady. It is promptly proportional to the reckon of movables effected and sold. It is deducted from the sales to enter at the assistance.

    Incremental Proceeds: The extension in proceeds with reference to the joined reckon of individuals amid dedicated period of opportunity is termed as incremental proceeds. The incremental proceeds is the object issue of sales treasure hither joined require to rework and opportunity proceeds late.

    Reworking requires: Requires incurred to improve or to rework the faulty individuals issueing in an extension of proceeds to the audience. Show hither First Step | All Steps | Confutation Only

    Step-by-step

    Step 1 of 3

    a.

    Calculate the emolument as shown below:

    Profit=Sales−Totalcost=($5,000units×$7.5)−$33,750=$3,750\begin{array}{c}\\{\rm{Profit = Sales – Entirety require}}\\\\{\rm{ = }}\left( {\$ 5,000{\rm{ individuals }} \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 require per individual = }}\frac{{{\rm{Entirety capricious require}}}}{{{\rm{Entirety reckon of individuals effected}}}}\\\\ = \frac{{\$ 97,500}}{{15,000}}\\\\ = \$ 6.5{\rm{ per individual}}{\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 require coercion 5,000 untis = (\$ 6}}{\rm{.5}} \times {\rm{5,000 individuals) + (}}\$ {\rm{0}}{\rm{.25}} \times {\rm{5,000 individuals)}}\\\\ = \$ 33,750.\\\end{array}Totalcostfor5,000untis=($6.5×5,000units)+($0.25×5,000units)=$33,750.​

    Therefore, the emolument from the specific direct is.Part a

    The emolument from the specific direct is $3,750.
    Explanation | Hint coercion direct step

    Total require is fitted by adding the capricious and unwandering requires. First, calculate capricious require per individual by dividing capricious manufacturing costs by reckon of individuals coercion the late year.

    Then, capricious require coercion 5,000 individuals is fitted by multiplying capricious require per individual with specific direct 5,000 individuals. Calculate entirety selling require by multiplying selling require per individual with specific direct 5,000 individuals. Add entirety capricious require and entirety selling require to enter entirety require coercion 5,000 individuals.

    Calculate emolument on specific direct by deducting the entirety require incurred on 5,000 units from entirety sales on 5,000 individuals. Entirety sales on 5,000 individuals is fitted by multiplying selling value of $7.50 per individual with 5,000 units.