Xenon Autocar Company manufactures automobiles. The Fastback Car Division sellsits cars for $50,000 each to the general public. The fastback cars have manufacturingcosts of $25,000 each for variable and $15,000 each for fixed costs. The division's totalfixed manufacturing costs are $75,000,000 at the normal volume of 5,000 units.The Coupe Car Division has been unable to meet the demand for its cars this year. It hasoffered to buy 1,000 cars from the Fastback Car Division at the full cost of $40,000.The Fastback Car Division has excess capacity and the 1,000 units can be producedwithout interfering with the current outside sales of 5,000. The 6,000 volume is withinthe division's relevant operating range.Explain whether the Fastback Car Division should accept the offer.Answer: Unit SalesVariable costsContribution margin$40,00025,000$15,000

Step 1:Decision making is a process where we choose one alternative based on relevant cost. Relevant…

Answered: Xenon Autocar Company manufactures…

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter8: Tactical Decision-making And Relevant Analysis

Section: Chapter Questions

Problem 54P

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Jordan Bicycle Manufacturing Company currently produces the handlebars used in manufacturing its bicycles, which are high-quality racing bikes with limited sales. Jordan produces and sells only 6,700 bikes each year. Due to the low volume of activity, Jordan is unable to obtain the economies of scale that larger producers achieve. For example, Jordan could buy the handlebars for $40 each; they cost $43 each to make. The following is a detailed breakdown of current production costs. Unit Total Item Cost Unit-level costs $ 113,900 60,300 13,400 $17 Materials Labor 9 Overhead 2 Allocated facility-level 15 100,500 Costs Total $43 $288,100 After seeing these figures, Jordan's president remarked that it would be foolish for the company to continue to produce the handlebars at $43 each when it can buy them for $40 each Required: a. Calculate the total relevant cost Per Unit Total Total relevant cost b.Do you agree with the president's conclusion? Yes O No
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Jordan Bicycle Manufacturing Company currently produces the handlebars used in manufacturing its bicycles, which are high-quality racing bikes with limited sales. Jordan produces and sells only 6,200 bikes each year. Due to the low volume of activity, Jordan is unable to obtain the economies of scale that larger producers achieve. For example, Jordan could buy the handlebars for $32 each; they cost $35 each to make. The following is a detailed breakdown of current production costs Unit Cost Total Item Unit-level costs 16 99,200 62,000 18,600 Materials Labor 10 Overhead 3 Allocated facility-level 6 37,200 Costs $35 $217,000 Total After seeing these figures, Jordan's president remarked that it would be foolish for the company to continue to produce the handlebars at $35 each when it can buy them for $32 each Required: a. Calculate the total relevant cost. Per Unit Total Total relevant cost b. Do you agree with the president's conclusion? Yes ONo оо

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