Question

X Company spent $7,400 on an engineering study that revealed that Product A could be manufactured...

X Company spent $7,400 on an engineering study that revealed that Product A could be manufactured more efficiently. The new process would result in variable cost savings of $0.93 per unit and additional fixed costs of $3,300. Current variable costs per unit are 3.85, and current fixed costs are $10,950. Last year, X Company sold 3,800 units of Product A at a price of $12.80. At what unit sales level would X Company be indifferent between adopting the new process and not adopting it?

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Indifference point means, we will have same operating cost under both methods.

Formula Method

Indifference point = Change in Fixed cost / Change in variable cost

= 3300 / 0.93 = 3548.39 Units

OR

Equation method

Current process cost equation is ........ 3.85 *X + 10950 ie variable cost + fixed cost

Proposed process cost equation is ........ 2.92 * X + 14250

Now solve the equations for X  

3.85 *X + 10950 = 2.92 * X + 14250

0.93 * X = 3300

X = 3548.39 Units

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Campbell Company currently produces and sells 7,400 units annually of a product that has a variable...
Campbell Company currently produces and sells 7,400 units annually of a product that has a variable cost of $9 per unit and annual fixed costs of $364,000. The company currently earns a $80,000 annual profit. Assume that Campbell has the opportunity to invest in new labor-saving production equipment that will enable the company to reduce variable costs to $7 per unit. The investment would cause fixed costs to increase by $10,800 because of additional depreciation cost. Required a)Use the equation...
Soca Engineering Company manufactures a range of products. Shown below are the budgeted total unit cost...
Soca Engineering Company manufactures a range of products. Shown below are the budgeted total unit cost for one of the components and one of the products manufactured by the company. Component ABC per unit Product XYZ per unit $ $ Direct materials 180 480 Direct labour 160 440 Variable overhead 80 220 Fixed overhead 220 600 Component ABC 640 Total 640 2380 Component ABC is incorporated into product XYZ manufactured and sold by the company. It is possible to purchase...
1. Engineering estimates show that the variable cost of manufacturing a new product will be ​$31...
1. Engineering estimates show that the variable cost of manufacturing a new product will be ​$31 per unit. Based on market​ research, the selling price of the product is to be ​$132 per unit and variable selling expense is expected to be ​$10 per unit. The fixed costs applicable to the new product are estimated to be ​$2900 per period and capacity is 140 units per period. Find algebraic statements for the revenue function 2. Engineering estimates show that the...
A product is being manufactured on a machine that has a book value of $10,000 (20...
A product is being manufactured on a machine that has a book value of $10,000 (20 years ago it was purchased for $50,000). The costs of the product are as follows: Item Unit Costs Labor, direct 4.00 Labor, variable indirect 5.00 Other variable overhead 2.50 Fixed overhead 2.50 Total 14.00 In the past year 10,000 units were produced and sold for $10 per unit. It is expected that the old machine can be used indefinitely in the future and that...
Marco Enterprises manufactures one of the components used to assemble its main company product. Specialty? Products,...
Marco Enterprises manufactures one of the components used to assemble its main company product. Specialty? Products, Inc., has offered to make the component at a co st $13.10 per unit. Marco ?Enterprises' current cost is $14.75 per unit of the?component, based on the 105,000 components that Marco Enterprises currently produces. Read the requirements LOADING... . This current cost per unit is based on the following? calculations: LOADING... ?(Click the icon to view the? information.)None of Marco ?Enterprises' fixed costs will...
Alton Company produces metal belts. During the current month, the company incurred the following product costs:...
Alton Company produces metal belts. During the current month, the company incurred the following product costs: Raw materials $80,000; Direct labor $50,000; Electricity used in the Factory $20,000; Factory foreperson salary $2,500; and Maintenance of factory machinery $1,800. Alton Company's direct product costs totaled: Multiple Choice $50,000. $22,500. $130,000. $24,300. 2. Accents Associates sells only one product, with a current selling price of $200 per unit. Variable costs are 20% of this selling price, and fixed costs are $50,000 per...
Product J is one of the many products manufactured and sold by Oceanside Company. An income...
Product J is one of the many products manufactured and sold by Oceanside Company. An income statement by product line for the past year indicated a net loss for Product J of $12,250. This net loss resulted from sales of $260,000, cost of goods sold of $186,500, and operating expenses of $85,750. It is estimated that 30% of the cost of goods sold represents fixed factory overhead costs and that 40% of the operating expense is fixed. If Product J...
BM Company sells two products, X and Y. Product X sells for $20 per unit with...
BM Company sells two products, X and Y. Product X sells for $20 per unit with variable costs of $11 per unit. Product Y sells for $30 per unit with variable costs of $16 per unit. During this period, BM sold 16,000 units of X and 4,000 units of Y, making Total Revenue of $440,000, and after subtracting variable cost got Total Contribution Margin of $200,000, and after subtracting Total Fixed Cost of $110,000, earned Operating Profit of $90,000. The...
Celestial Products, Inc. has decided to introduce a new product, which can be manufactured by either...
Celestial Products, Inc. has decided to introduce a new product, which can be manufactured by either a computer-assisted manufacturing system or a labor-intensive production system. The manufacturing method will not affect the quality of the product. The estimated manufacturing costs by the two methods are as follows: Computer-Assisted Manufacturing System Labor-Intensive Production System Direct material $ 9.30 $ 10.20 Direct labor (DLH denotes direct-labor hours) 0.5DLH @ $27.00 13.50 0.8DLH @ $22.50 18.00 Variable overhead 0.5DLH @ $18.00 9.00 0.8DLH...
Celestial Products, Inc. has decided to introduce a new product, which can be manufactured by either...
Celestial Products, Inc. has decided to introduce a new product, which can be manufactured by either a computer-assisted manufacturing system or a labor-intensive production system. The manufacturing method will not affect the quality of the product. The estimated manufacturing costs by the two methods are as follows: Computer-Assisted Manufacturing System Labor-Intensive Production System Direct material $ 9.50 $ 10.40 Direct labor (DLH denotes direct-labor hours) 0.5DLH @ $28.00 14.00 0.8DLH @ $23.50 18.80 Variable overhead 0.5DLH @ $19.00 9.50 0.8DLH...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT