Cost Accounting

G1: Relevant Cost Analysis in a Variety of Situations

Barker Company has a single product called a Zet. The company normally produces and sells 80,000 Zets each year at a selling price of $40 per unit. The company's unit costs at this level of activity are given below:

Direct materials $ 9.50

Direct labor 10.00

Variable manufacturing overhead 2.80

Fixed manufacturing overhead 5.00 ($400,000 total)

Variable selling expenses 1.70

Fixed selling expenses 4,50 ($360,000 total)

Total cost per unit. $33.50

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 100,000 Zets each year without any increase in fixed manufacturing overhead costs. The company could increase sales by 25% above the present 80,000 units each year if it were willing to increase the fixed selling expenses by $150,000. Would the increased fixed selling expenses be justified?

2. Assume again that Barker Company has sufficient capacity to produce 100,000 Zets each year.

The company has an opportunity to sell 20,000 units in an overseas market. Import duties, foreign permits, and other special costs associated with the order would total $14,000. 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.

3. One of the materials used in the production of Zets is obtained from a foreign supplier. Civil unrest in the supplier's country has caused a cutoff in material shipments that is expected to last for three months. Barker Company has enough material on hand to operate at 25% of normal levels for the three-month period. As an alternative, the company could close the plant down entirely for the three months. Closing the...