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  • 1.  difficult question marginal analysis part2

    Posted 01-15-2023 03:54 PM
    Fact Pattern: The Sommers Company manufactures a variety of industrial valves. Currently, the
    company is operating at about 70% capacity and is earning a satisfactory return on investment.
    Management has been approached by Glascow Industries Ltd. of Scotland with an offer to buy 120,000
    units of a pressure valve. Glascow manufactures a valve that is almost identical to Sommers' pressure
    valve; however, a fire in Glascow Industries' valve plant has shut down its manufacturing operations.
    Glascow needs the 120,000 valves over the next 4 months to meet commitments to its regular customers;
    the company is prepared to pay $19 each for the valves, FOB shipping point. Sommers' product cost,
    based on current attainable standards, for the pressure valve is as follows:
    Direct materials $ 5.00
    Direct labor 6.00

    Manufacturing overhead 9.00
    Total cost $20.00
    Manufacturing overhead is applied to production at the rate of $18 per standard direct labor hour. This
    overhead rate is made up of the following components:
    Variable factory overhead $ 6.00
    Fixed factory overhead-direct 8.00
    Fixed factory overhead-allocated 4.00
    Applied manufacturing overhead rate $18.00
    In determining selling prices, Sommers adds a 40% markup to product cost. This provides a $28
    suggested selling price for the pressure valve. The Marketing Department, however, has set the current
    selling price at $27 to maintain market share. Production management believes that it can handle the
    Glascow Industries order without disrupting its scheduled production. The order would, however, require
    additional fixed factory overhead of $12,000 per month in the form of supervision and clerical costs. If
    management accepts the order, 30,000 pressure valves will be manufactured and shipped to Glascow
    Industries each month for the next 4 months. Shipments will be made in weekly consignments, FOB
    shipping point.
    Question: 19 What is the minimum unit price that Sommers could accept without reducing net
    income?


    A. $14.40
    Answer (A) is correct.
    The minimum unit price without reducing net income must cover variable costs plus the additional
    fixed cost. Therefore, the three variable costs of $5.00 for direct materials, $6.00 for direct labor, and
    $3.00 for variable overhead are added to the additional fixed cost per unit $.40 ($48,000 ÷ 120,000).
    The total is $14.40

    my quiz how he get the 3 (variable cost) in answers

    ------------------------------
    Sameh Mahmoud Ismail
    Accountant
    Giza
    Egypt
    ------------------------------


  • 2.  RE: difficult question marginal analysis part2

    Posted 01-16-2023 06:39 AM
    Hi Samesh,

    Variable cost $ 3 is taken on the basis of Laboure rate...!

    Its totol 18 $ for un hour and it considered $ 9 based on hourly rates.

    Hope this can be helpful to you

    ------------------------------
    SUDHIR LEVI
    Chief Financial Officer
    New Delhi
    India
    ------------------------------



  • 3.  RE: difficult question marginal analysis part2

    Posted 01-16-2023 03:37 PM
    hello sir

    in this quiz he give 18 for hour and 9 how the 3 come please i can not get it because i entered part 2 first rathet than part1

    ------------------------------
    Sameh Mahmoud Ismail
    Accountant
    Giza
    Egypt
    ------------------------------

    Original Message


  • 4.  RE: difficult question marginal analysis part2

    Posted 01-17-2023 04:18 AM
    Hi 
    Kindly read below lines of question:

    Manufacturing overhead is applied to production at the rate of $18 per standard direct labor hour. This
    overhead rate is made up of the following components:
    Variable factory overhead $ 6.00
    Fixed factory overhead-direct 8.00
    Fixed factory overhead-allocated 4.00
    Applied manufacturing overhead rate $18.00


    Total Manufacturing Exp given $ 9 means 1/2 hour basis or say 50% is taken in calculation.

    Now variable factory overheads are $ 6 and $3 will be added as cost to product.


    This is what I understood. Please also try to find a logic in Study Materials provided.

    Regards





    ------------------------------
    SUDHIR LEVI
    Chief Financial Officer
    New Delhi
    India
    ------------------------------

    Original Message


  • 5.  RE: difficult question marginal analysis part2

    Posted 12-07-2023 03:22 AM

    Can you please distinguish the difference between Fixed factory OH - directed and Fixed factory OH - allocated in making decision? I think Fixed factory OH directed is avoidable FC and the relevant cost, so need to be included in price setting of speical order, 

    I am so confused about this problem. 



    ------------------------------
    Thuy Le
    Other
    Ha Noi
    Viet Nam
    ------------------------------

    Original Message


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