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Manal Elkhoshkhany, Bachelor's Degree
Category: Multiple Problems
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Experience:  Completed by BA degree in 1988 and graduated with a GPA of 4.0
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# Problem 13-22 Relevant Cost Analysis in a Variety of Situations

### Customer Question

Problem 13-22 Relevant Cost Analysis in a Variety of Situations [LO2, LO3, LO4]
Barker Company has a single product called a Zet. The company normally produces and sells 85,000 Zets each year at a selling price of \$48 per unit. The company's unit costs at this level of activity are given below:

Direct materials \$ 8.50
Direct labor 12.00
Fixed manufacturing overhead 7.00 (\$595,000 total)
Variable selling expenses 3.70
Fixed selling expenses 4.50 (\$382,500 total)
Total cost per unit \$ 38.50

A number of questions relating to the production and sale of Zets are given below. Each question is independent.
Requirement 1:
(a)
Assume that Barker Company has sufficient capacity to produce 110,500 Zets each year without any increase in fixed manufacturing overhead costs. The company could increase sales by 30% above the present 85,000 units each year if it were willing to increase the fixed selling expenses by \$120,000. Compute the Incremental net operating income. (Omit the "\$" sign in your response.)
Incremental net operating income \$____________
b) Would the increased fixed selling expenses be justified? A) YES B (N0)

Requirement 2:
Assume again that Barker Company has sufficient capacity to produce 110,500 Zets each year. The company has an opportunity to sell 25,500 units in an overseas market. Import duties, foreign permits, and other special costs associated with the order would total \$22,950. The only selling costs that would be associated with the order would be \$1.50 per unit shipping cost. Compute the per unit break-even price on this order. (Round your answer to 2 decimal places. Omit the "\$" sign in your response.)

Break-even price per unit \$ ____________

Requirement 3:
One of the materials used in the production of Zets is obtained from a foreign supplier. Civil unrest in the supplier's country has caused a cutoff in material shipments that is expected to last for three months. Barker Company has enough material on hand to operate at 25% of normal levels for the three-month period. As an alternative, the company could close the plant down entirely for the three months. Closing the plant would reduce fixed manufacturing overhead costs by 35% during the three-month period and the fixed selling expenses would continue at two-thirds of their normal level. What would be the impact on profits of closing the plant for the three-month period? (Input the amount as positive value. Omit the "\$" sign in your response.)

Requirement 4:
The company has 700 Zets on hand that were produced last month and have small blemishes. Due to the blemishes, it will be impossible to sell these units at the normal price. If the company wishes to sell them through regular distribution channels, what unit cost figure is relevant for setting a minimum selling price? (Round your answer to 2 decimal places. Omit the "\$" sign in your response.)

Relevant cost is \$ ____________ per unit

Requirement 5:
An outside manufacturer has offered to produce Zets and ship them directly to Barker's customers. If Barker Company accepts this offer, the facilities that it uses to produce Zets would be idle; however, fixed manufacturing overhead costs would continue at 30%. Since the outside manufacturer would pay for all shipping costs, the variable selling expenses would be reduced by 60%. Compute the unit cost that is relevant for comparison to the price quoted by the outside manufacturer. (Round your answer to 2 decimal places. Omit the "\$" sign in your response.)

Quotation must be __________ than \$____________ per unit.
Total Avoidable Unit Cost Equals? __________
Submitted: 2 years ago.
Category: Multiple Problems
Expert:  Manal Elkhoshkhany replied 2 years ago.

Hello

Thank you

Customer: replied 2 years ago.

The deadline is (3/6/2012) by 11:59 P.M. CST. (Tonight)

Title of the book is: "Managerial Accounting" Mcgraw-Hill Irwin

Authors are: Garrison, Noreen, Brewer

Fourteenth Edition

Expert:  Manal Elkhoshkhany replied 2 years ago.

I am trying to check the book's website to see if they have an excel template for this question

Customer: replied 2 years ago.
Can you make your own template?
Customer: replied 2 years ago.
Are you still working on it, or have you turned it over to another expert?
Expert:  F. Naz replied 2 years ago.
By what time do you need the answer thanks.
Expert:  F. Naz replied 2 years ago.

Requirement 1:
(a)
Assume that Barker Company has sufficient capacity to produce 110,500 Zets each year without any increase in fixed manufacturing overhead costs. The company could increase sales by 30% above the present 85,000 units each year if it were willing to increase the fixed selling expenses by \$120,000. Compute the Incremental net operating income. (Omit the "\$" sign in your response.)
Incremental net operating income \$__415500__________

25500*48-27 -120000 = 415500
b) Would the increased fixed selling expenses be justified? A) YES

Requirement 2:
Assume again that Barker Company has sufficient capacity to produce 110,500 Zets each year. The company has an opportunity to sell 25,500 units in an overseas market. Import duties, foreign permits, and other special costs associated with the order would total \$22,950. The only selling costs that would be associated with the order would be \$1.50 per unit shipping cost. Compute the per unit break-even price on this order. (Round your answer to 2 decimal places. Omit the "\$" sign in your response.)

27+1.5+22950/25500 = 29.4

Break-even price per unit \$ 29.4

Requirement 3:
One of the materials used in the production of Zets is obtained from a foreign supplier. Civil unrest in the supplier's country has caused a cutoff in material shipments that is expected to last for three months. Barker Company has enough material on hand to operate at 25% of normal levels for the three-month period. As an alternative, the company could close the plant down entirely for the three months. Closing the plant would reduce fixed manufacturing overhead costs by 35% during the three-month period and the fixed selling expenses would continue at two-thirds of their normal level. What would be the impact on profits of closing the plant for the three-month period? (Input the amount as positive value. Omit the "\$" sign in your response.)

595000/12*3*.35+382500/12*3*1/3 = 52063+31875 = 83938 total cost saving

Less loss of CM 85000/12*3*.25*48-27 = 111563

Requirement 4:
The company has 700 Zets on hand that were produced last month and have small blemishes. Due to the blemishes, it will be impossible to sell these units at the normal price. If the company wishes to sell them through regular distribution channels, what unit cost figure is relevant for setting a minimum selling price? (Round your answer to 2 decimal places. Omit the "\$" sign in your response.)

Relevant cost is \$ _27___________ per unit
All variable should be covered if the blemish units can be sold for any price more than 27 in the market, otherwise the relevant cost should be \$0 as there is no worth of blemish units, therefore whatever is received it should be acceptable.

Requirement 5:
An outside manufacturer has offered to produce Zets and ship them directly to Barker's customers. If Barker Company accepts this offer, the facilities that it uses to produce Zets would be idle; however, fixed manufacturing overhead costs would continue at 30%. Since the outside manufacturer would pay for all shipping costs, the variable selling expenses would be reduced by 60%. Compute the unit cost that is relevant for comparison to the price quoted by the outside manufacturer. (Round your answer to 2 decimal places. Omit the "\$" sign in your response.)

27+595000*.7/85000-3.7*.6 = 29.68

Quotation must be less than \$29.68 per unit.
Total Avoidable Unit Cost Equals? 29.68

Please do not hesitate to ask further and if you are satisfied do not forget to click on ACCEPT button so I get paid for my efforts, thanks.

Customer: replied 2 years ago.
Requirement 2 and Requirement 4 are incorrect. Also, where did the number 27 come from in the calculation to Requirement 1? The number 27 keeps coming up in the other calculations as well, I need to know how it is calculated.
Customer: replied 2 years ago.
I also believe the math is wrong in Requirement 2.
Customer: replied 2 years ago.
I need another answer that is accurate, and on time.
Expert:  Manal Elkhoshkhany replied 2 years ago.

Hello

I am working on the post BAtigers

Expert:  Manal Elkhoshkhany replied 2 years ago.

I disagree with the solution posted by the other expert. Please click on the following link for the solution:

http://www.box.com/s/t2t0a9eeesfv59nsypj5

P.S. If you like my services, please feel free to direct your future posts to me specifically by typing "For BusinessTutor" at the beginning of your post. Should you choose to do this, please try to allow me 48 hours before the deadline. If you need to meet me online for a timed assignment, please advise me of the date and time (EST) you want me to meet you here and I will. Please make sure you take the length (and number) of the questions into consideration when making your offer to avoid delays in providing solutions.Thank you

Manal Elkhoshkhany, Bachelor's Degree
Satisfied Customers: 9513
Experience: Completed by BA degree in 1988 and graduated with a GPA of 4.0
Expert:  Manal Elkhoshkhany replied 2 years ago.

Thank you for your feedback, but is that fair? You give me a neutral feedback because I helped and saved you from having an incorrect solution?

I have opted out when the other expert has answered cause you had a very tight deadline and I am busy helping other students, I do not think that a neutral feedback is at all fair

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