The Following Information Applies To The Questions Displayed Below A Company Produces Two Products Product 1 Sells F 1 (161.04 KiB) Viewed 48 times
[The following information applies to the questions displayed below.] A company produces two products. Product 1 sells for $165 and Product 2 sells for $130. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 113,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit Product Product 1 2 $ 40 $ 24 29 25 15 14 25 27 21 17 24 19 $154 $126 The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are unavoidable and have been allocated to products based on sales dollars. Consider each of the following questions separately. 3. Assume the company normally produces and sells 99,000 unit of Product 2 per year. What is the financial advantage (disadvantage) of discontinuing Product 2? Financial (disadvantage)
5. The company expects to produce and sell 89,000 units of Product 1 during the current year. A supplier has offered to manufacture and deliver 89,000 units for a price of $116 per unit. What is the financial advantage (disadvantage) of buying 89,000 Product 1 units from the supplier instead of making those units? Financial (disadvantage)
7. The company's customers will buy a maximum of 89,000 units of Product 1 and 69,000 units of Product 2. If there are only 220,000 pounds of raw material available for production, how many units of each product should be produced to maximize profits? Product 1 Product 2 Units produced
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