Quiz 7, 8, 10
1. Lucas Company requires three units of R2 for every unit of D2 that it produces. Currently, R2 is made by Lucas, with the following per unit costs in a period when 20,000 units were produced:
Direct materials $ 5.00
Direct labor 2.50
Manufacturing overhead 5.60
Variable manufacturing overhead is applied at $3.75 per unit. The rest of the overhead is fixed. Lucas will need 21,000 units of R2 for next year’s production.
Sperlberg Corporation has offered to supply 21,000 units of R2 at a price of $12.00 per unit. If Lucas accepts the offer, all of the variable costs and $20,000 of the fixed costs will be avoided. Should Lucas Company accept the offer from Sperlberg Corporation?
2. Vasquez Company sells a single product that has variable costs of $5 per unit and the company has total fixed costs of $70,000. Vasquez estimates demand at various activity levels as follows:
Units Sold Price per unit
18,000 10.00 A. Calculate the total contribution margin at each price level B. Which price maximizes profit?
3. Jenks Industries is considering a special order from an overseas customer for 10,000 units at a price of $40.00 per unit. Jenks’s product normally sells for $52.00 per unit and has variable manufacturing costs of $21.00 per unit and variable selling costs of $4.00 per unit. Fixed manufacturing costs are $500,000 and fixed selling and administrative costs are $200,000. Jenks has capacity to produce 100,000 units and is currently producing 80,000. If Jenks accepts the order, Jenks will incur legal and accounting fees of $7,000 in connection with the order. Variable selling costs will not be incurred on the special order. A. What are the incremental revenues associated with the special order? B. What are the incremental costs associated with the special order? C. What amount of additional profit or loss will be incurred if the order is accepted?