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Manal Elkhoshkhany, Bachelor's Degree
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Experience:  Completed by BA degree in 1988 and graduated with a GPA of 4.0
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# 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
Variable manufacturing overhead 2.80
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.)
Net (advantage/disadvantage) of closing the plant equals?
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: 3 years ago.
Category: Multiple Problems
Expert:  Manal Elkhoshkhany replied 3 years ago.

Hello

Please advise your deadline as well as the name of the book you are using: Title, author's name, and edition

Thank you

Customer: replied 3 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 3 years ago.

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. Thank you

Manal Elkhoshkhany, Bachelor's Degree
Satisfied Customers: 9608
Experience: Completed by BA degree in 1988 and graduated with a GPA of 4.0
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