9-26 Calculating costs per unit. The management of Kozak has the main goal of profit maximization. Kozak produces and sells a product that cannot be produced to stock. The sales and production fluctuates. After studying the sales and production number over several periods, the following pattern can be distinguished: . If the sales over a period is 30,000 units, the production level is called low, if the sales over a period is 40,000 units, the production level is called common; if the sales over a period is 50,000 units, the pro- duction level is called high. The fixed costs per period are $120,000. The linear variable costs per unit are $5. . The selling price per unit is $8.50. At the end of 2013, the management is preparing the plans for 2014. The determination of the standard cost per unit and the normal capacity utilization leads to a heated discussion. The accountant argues: "Because Kozak strives for profit maximization, the difference between selling price and standard costs must be maximal. The higher the normal capacity utilization, the lower the cost per product. So we must choose for a normal capacity utilization of 50,000 units. At this level, the profit will be maximized." The sales manager argues: "I agree fully with the accountant. If the normal capacity utilization is 30,000 units, the standard costs per unit will be much too high. We will not make any profit anymore, and Kozak better stop producing and sell- ing the product." Comment on the opinion of the accountant and the sales manager. Give calculations and other arguments.
9-26 Calculating costs per unit. The management of Kozak has the main goal of profit maximization. Kozak produces and sells a product that cannot be produced to stock. The sales and production fluctuates. After studying the sales and production number over several periods, the following pattern can be distinguished: . If the sales over a period is 30,000 units, the production level is called low, if the sales over a period is 40,000 units, the production level is called common; if the sales over a period is 50,000 units, the pro- duction level is called high. The fixed costs per period are $120,000. The linear variable costs per unit are $5. . The selling price per unit is $8.50. At the end of 2013, the management is preparing the plans for 2014. The determination of the standard cost per unit and the normal capacity utilization leads to a heated discussion. The accountant argues: "Because Kozak strives for profit maximization, the difference between selling price and standard costs must be maximal. The higher the normal capacity utilization, the lower the cost per product. So we must choose for a normal capacity utilization of 50,000 units. At this level, the profit will be maximized." The sales manager argues: "I agree fully with the accountant. If the normal capacity utilization is 30,000 units, the standard costs per unit will be much too high. We will not make any profit anymore, and Kozak better stop producing and sell- ing the product." Comment on the opinion of the accountant and the sales manager. Give calculations and other arguments.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:9-26 Calculating costs per unit. The management of Kozak has the main goal of profit maximization. Kozak
produces and sells a product that cannot be produced to stock. The sales and production fluctuates. After
studying the sales and production number over several periods, the following pattern can be distinguished:
■ If the sales over a period is 30,000 units, the production level is called low, if the sales over a period is
40,000 units, the production level is called common; if the sales over a period is 50,000 units, the pro-
duction level is called high.
■ The fixed costs per period are $120,000.
■ The linear variable costs per unit are $5.
■ The selling price per unit is $8.50.
At the end of 2013, the management is preparing the plans for 2014. The determination of the standard cost
per unit and the normal capacity utilization leads to a heated discussion.
The accountant argues:
"Because Kozak strives for profit maximization, the difference between selling price and standard costs
must be maximal. The higher the normal capacity utilization, the lower the cost per product. So we must
choose for a normal capacity utilization of 50,000 units. At this level, the profit will be maximized."
The sales manager argues:
"I agree fully with the accountant. If the normal capacity utilization is 30,000 units, the standard costs per
unit will be much too high. We will not make any profit anymore, and Kozak better stop producing and sell-
ing the product."
Comment on the opinion of the accountant and the sales manager. Give calculations and other arguments.
Required
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