GOLD Company has a single product called a Goof. The company normally produces and sells 60,000 Goofs each year at a selling price of $33 per unit. The company’s unit costs at this level of activity are: Direct materials $10.00 Direct labour 4.25 Variable manufacturing overhead 2.20 Fixed manufacturing overhead 5.00 Variable selling expenses 1.25 Fixed selling expenses 3.50 Total cost per unit $26.50 A number of questions relating to the production and sale of Goofs follow. Consider each question separately. Required: Assume that GOLD Company has sufficient capacity to produce 90,000 Goofs every year without any increase in fixed manufacturing overhead costs. The company could increase its sales by 20% above the present 60,000 units each year if it were willing to increase the fixed selling expenses by $82,000. Would the increased fixed expenses be justified? Show your calculations.
GOLD Company has a single product called a Goof. The company normally produces and sells 60,000 Goofs each year at a selling price of $33 per unit. The company’s unit costs at this level of activity are: Direct materials $10.00 Direct labour 4.25 Variable manufacturing overhead 2.20 Fixed manufacturing overhead 5.00 Variable selling expenses 1.25 Fixed selling expenses 3.50 Total cost per unit $26.50 A number of questions relating to the production and sale of Goofs follow. Consider each question separately. Required: Assume that GOLD Company has sufficient capacity to produce 90,000 Goofs every year without any increase in fixed manufacturing overhead costs. The company could increase its sales by 20% above the present 60,000 units each year if it were willing to increase the fixed selling expenses by $82,000. Would the increased fixed expenses be justified? Show your calculations.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
GOLD Company has a single product called a Goof. The company normally produces and sells 60,000 Goofs each year at a selling price of $33 per unit. The company’s unit costs at this level of activity are:
|
Direct materials |
$10.00 |
|
|
Direct labour |
4.25 |
|
|
Variable manufacturing overhead |
2.20 |
|
|
Fixed manufacturing overhead |
5.00 |
|
|
Variable selling expenses |
1.25 |
|
|
Fixed selling expenses |
3.50 |
|
|
Total cost per unit |
$26.50 |
A number of questions relating to the production and sale of Goofs follow. Consider each question separately.
Required:
- Assume that GOLD Company has sufficient capacity to produce 90,000 Goofs every year without any increase in fixed
manufacturing overhead costs. The company could increase its sales by 20% above the present 60,000 units each year if it were willing to increase the fixed selling expenses by $82,000. Would the increased fixed expenses be justified? Show your calculations.
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