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Spencer Chemical Corporation produces an oil-based chemical product which it sells to paint manufacturers. In 2022, the company incurred $344,000 of costs to produce 40,000 gallons of the chemical. The selling price of the chemical is $12.00 per gallon. The costs per unit to manufacture a gallon of the chemical are presented below: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total manufacturing costs Net income per unit $6.00 Incremental net income 1.20 $ .80 The company is considering manufacturing the paint itself. If the company processes the chemical further and manufactures the paint itself, the following additional costs per gallon will be incurred: Direct materials $1.70, Direct labor $.60, Variable manufacturing overhead $.50. No increase in fixed manufacturing overhead is expected. The company can sell the paint at $15.50 per gallon. .60 Determine the incremental per gallon increase in net income and the total increase in net income if the company manufactures the paint. (Round net income per unit value to 2 decimal places, e.g. 15.25.) $8.60 per unit

Spencer Chemical Corporation produces an oil-based chemical product which it sells to paint manufacturers. In 2022, the company incurred $344,000 of costs to produce 40,000 gallons of the chemical. The selling price of the chemical is $12.00 per gallon. The costs per unit to manufacture a gallon of the chemical are presented below: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total manufacturing costs Net income per unit $6.00 Incremental net income 1.20 $ .80 The company is considering manufacturing the paint itself. If the company processes the chemical further and manufactures the paint itself, the following additional costs per gallon will be incurred: Direct materials $1.70, Direct labor $.60, Variable manufacturing overhead $.50. No increase in fixed manufacturing overhead is expected. The company can sell the paint at $15.50 per gallon. .60 Determine the incremental per gallon increase in net income and the total increase in net income if the company manufactures the paint. (Round net income per unit value to 2 decimal places, e.g. 15.25.) $8.60 per unit

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Spencer Chemical Corporation produces an oil-based chemical product which it sells to paint manufacturers. In 2022, the company incurred $344,000 of costs to produce 40,000 gallons of the chemical. The selling price of the chemical is $12.00 per gallon. The costs per unit to manufacture a gallon of the chemical are presented below: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total manufacturing costs Net income per unit Incremental net income The company is considering manufacturing the paint itself. If the company processes the chemical further and manufactures the paint itself, the following additional costs per gallon will be incurred: Direct materials $1.70, Direct labor $.60, Variable manufacturing overhead $.50. No increase in fixed manufacturing overhead is expected. The company can sell the paint at $15.50 per gallon. Determine the incremental per gallon increase in net income and the total increase in net income if the company manufactures the paint. (Round net income per unit value to 2 decimal places, e.g. 15.25.) Sales Cost of goods sold Gross profit Operating expenses Net income Sales $6.00 $ Variable costs 1.20 $ Show Transcribed Text Cost of goods sold Veronica Mars, a recent graduate of Bell's accounting program, evaluated the operating performance of Cullumber Company's six divisions. Veronica made the following presentation to Cullumber's board of directors and suggested the Percy Division be eliminated. "If the Percy Division is eliminated," she said, "our total profits would increase by $26,200." Operating expenses Total variable $8.60 The Other Five Divisions .80 $1,663,000 .60 978,600 684,400 526,000 $158,400 Percy Division $100,100 76,800 In the Percy Division, cost of goods sold is $59,300 variable and $17,500 fixed, and operating expenses are $31,400 variable and $18,100 fixed. None of the Percy Division's fixed costs will be eliminated if the division is discontinued. per unit 23,300 Is Veronica right about eliminating the Percy Division? Prepare a schedule to support your answer. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) 49,500 $(26,200 ) Continue Total $1,763,100 1,055,400 707,700 575,500 $132,200 Eliminate Net Income Increase (Decrease)
Transcribed Image Text:Spencer Chemical Corporation produces an oil-based chemical product which it sells to paint manufacturers. In 2022, the company incurred $344,000 of costs to produce 40,000 gallons of the chemical. The selling price of the chemical is $12.00 per gallon. The costs per unit to manufacture a gallon of the chemical are presented below: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total manufacturing costs Net income per unit Incremental net income The company is considering manufacturing the paint itself. If the company processes the chemical further and manufactures the paint itself, the following additional costs per gallon will be incurred: Direct materials $1.70, Direct labor $.60, Variable manufacturing overhead $.50. No increase in fixed manufacturing overhead is expected. The company can sell the paint at $15.50 per gallon. Determine the incremental per gallon increase in net income and the total increase in net income if the company manufactures the paint. (Round net income per unit value to 2 decimal places, e.g. 15.25.) Sales Cost of goods sold Gross profit Operating expenses Net income Sales $6.00 $ Variable costs 1.20 $ Show Transcribed Text Cost of goods sold Veronica Mars, a recent graduate of Bell's accounting program, evaluated the operating performance of Cullumber Company's six divisions. Veronica made the following presentation to Cullumber's board of directors and suggested the Percy Division be eliminated. "If the Percy Division is eliminated," she said, "our total profits would increase by $26,200." Operating expenses Total variable $8.60 The Other Five Divisions .80 $1,663,000 .60 978,600 684,400 526,000 $158,400 Percy Division $100,100 76,800 In the Percy Division, cost of goods sold is $59,300 variable and $17,500 fixed, and operating expenses are $31,400 variable and $18,100 fixed. None of the Percy Division's fixed costs will be eliminated if the division is discontinued. per unit 23,300 Is Veronica right about eliminating the Percy Division? Prepare a schedule to support your answer. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) 49,500 $(26,200 ) Continue Total $1,763,100 1,055,400 707,700 575,500 $132,200 Eliminate Net Income Increase (Decrease)
Total variable Contribution margin Fixed costs Cost of goods sold Operating expenses Total fixed Net income (loss) Veronica is $ tA LA
Transcribed Image Text:Total variable Contribution margin Fixed costs Cost of goods sold Operating expenses Total fixed Net income (loss) Veronica is $ tA LA
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