Question

Ben Gordon, Inc. manufactures 2 products, wheels, and seats. The company has estimated its overhead in the assembling department to be $735000. The company produces 300000 wheels and 600000 seats each year. Each wheel uses 2 parts, and each seat uses 3 parts. How much of the assembly overhead should be allocated to wheels?

$183750.

$245000.

$294000.

$315000.

A company desires to sell a sufficient quantity of products to earn a profit of $200000. If the unit sales price is $20, unit variable cost is $12, and total fixed costs are $800000, how many units must be sold to earn a net income of $200000?

212500 units

125000 units

110000 units

65000 units

Answer 1

1)Option 1st is correct. i.e $183,750.

Overhead of assembly department : $735000

Total Parts for allocation = (300,000*2) + (600000 * 3) = 600,000+ 1,800,000 = 2,400,000

Rate per part = 735,000 / 240,0000 = 0.30625

Allocation to wheels = 600,000 pars * 0.30625 = $183,750

2) Option 2nd is correct. i.e 125,000 units

Desired income: $ 200,000

Fixed cost: $ 800,000

Desired contribution :Desired income+Fixed cost =200,000+800,000 =10,00,000

Selling price per unit =20 per unit

Variable cost per unit: 12 per unit

Contribution margin per unit =Selling price -Variable cost =20-12 = $ 8 per unit

Target sales in units: Desired contribution/ Contribution margin per unit

10,00,000 /8 = 125,000 units