# ACCT 212 Connect Homework 7 Liberty Solution

Question 1

Farrow Co. expects to sell 300,000 units of its product in the next period with the following results.

The company has an opportunity to sell 30,000 additional units at \$12 per unit. The additional sales would not affect its current expected sales. Direct materials and labor costs per unit would be the same for the additional units as they are for the regular units. However, the additional volume would create the following incremental costs: (1) total overhead would increase by 15% and (2) administrative expenses would increase by \$129,000.

Calculate the combined total net income if the company accepts the offer to sell additional units at the reduced price of \$12 per unit.

Question 2

Gilberto Company currently manufactures 40,000 units per year of one of its crucial parts. Variable costs are \$2.50 per unit, fixed costs related to making this part are \$40,000 per year, and allocated fixed costs are \$50,000 per year. Allocated fixed costs are unavoidable whether the company makes or buys the part. Gilberto is considering buying the part from a supplier for a quoted price of \$3.70 per unit guaranteed for a three-year period.

Calculate the total incremental cost of making 40,000 and buying 40,000 units. Should the company continue to manufacture the part, or should it buy the part from the outside supplier?

Question 3

A company must decide between scrapping or reworking units that do not pass inspection. The company has 16,000 defective units that cost \$5.70 per unit to manufacture. The units can be sold as is for \$2.70 each, or they can be reworked for \$4.60 each and then sold for the full price of \$8.40 each. If the units are sold as is, the company will be able to build 16,000 replacement units at a cost of \$5.70 each, and sell them at the full price of \$8.40 each.

What is the incremental income from selling the units as scrap and reworking and selling the units? Should the company sell the units as scrap or rework them? (Enter costs and losses as negative values.)

Question 4

Cobe Company has already manufactured 19,000 units of Product A at a cost of \$20 per unit. The 19,000 units can be sold at this stage for \$470,000. Alternatively, the units can be further processed at a \$290,000 total additional cost and be converted into 5,700 units of Product B and 11,900 units of Product C. Per unit selling price for Product B is \$107 and for Product C is \$58.

1. Prepare an analysis that shows whether the 19,000 units of Product A should be processed further or not.

Question 5

Colt Company owns a machine that can produce two specialized products. Production time for Product TLX is three units per hour and for Product MTV is five units per hour. The machine’s capacity is 2,400 hours per year. Both products are sold to a single customer who has agreed to buy all of the company’s output up to a maximum of 4,080 units of Product TLX and 5,670 units of Product MTV. Selling prices and variable costs per unit to produce the products follow.

Determine the company's most profitable sales mix and the contribution margin that results from that sales mix. (Round cost per unit answers to 2 decimal places.)