Posted: July 6th, 2016

Would the increased fixed selling expenses be justified?

A company processes a chemical, dx-1, through pressure treatment. The process has two outputs, A and B. The January costs to process dx-1 are $50,000 for materials and $100,000 for conversion costs. The outputs sell for a total of $250,000. The sales revenues from A are $200,000 of the total. Using the net realizable method, assign costs to A and B for January.Barker Company has a single product called a Zet. The company normally produces and sells 84,000 Zets each year at a selling price of $48 per unit. The company’s unit costs at this level of activity are given below:

Direct materials $ 7.50
Direct labor 10.00
Variable manufacturing overhead 3.80
Fixed manufacturing overhead 8.00 ($672,000 total)
Variable selling expenses 3.70
Fixed selling expenses 4.50 ($378,000 total)

Total cost per unit $ 37.50

A number of questions relating to the production and sale of Zets are given below. Each question is independent.

Required:
1. Assume that Barker Company has sufficient capacity to produce 100,800 Zets each year without any increase in fixed manufacturing overhead costs. The company could increase sales by 20% above the present 84,000 units each year if it were willing to increase the fixed selling expenses by $110,000.

a. Calculate the incremental net operating income (Negative amount should be indicated with a minus sign. Do not round intermediate calculations.)

b. Would the increased fixed selling expenses be justified?

2. Assume again that Barker Company has sufficient capacity to produce 100,800 Zets each year. The company has an opportunity to sell 16,800 units in an overseas market. Import duties, foreign permits, and other special costs associated with the order would total $11,760. The only selling costs that would be associated with the order would be $1.50 per unit shipping cost. Compute the per unit break-even price on this order. (Do not round intermediate calculations. Round your answer to 2 decimal places.)