Question

Beckstead Company makes a single product called a widget. The company normally produces and sells 80,000 widgets each year at a selling price of $40 per unit. The company’s unit cost at this level of activity is 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

Required:

Assume that Beckstead Company has sufficient capacity to produce 100,000 widgets 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?

Answer 1

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