no handwriting please French Manufacturing Company produces and sells a line of products that are sold usually all year round. The The company has a maximum production capacity of 100,000 units per year. Operating at normal capacity, the The business earned an Operating Income of $600,000 in 2020. The following cost data has been prepared for the The year ended December 31, 2020. Selling price per unit……………………………………… $50.00 Production Costs: Direct Materials …………………………………. $10.00 Direct Labor ……………………………………. $8.00 Variable Manufacturing Overhead ……………. $7.00 Fixed Manufacturing Overhead…………....................... $450,000 Fixed Selling & Administrative Expenses……………… $300,000 Variable selling expense per unit ………………………. $10.00 Required: a) Using the equation method, calculate the normal capacity of the business.
no handwriting please
French Manufacturing Company produces and sells a line of products that are sold usually all year round. The
The company has a maximum production capacity of 100,000 units per year. Operating at normal capacity, the
The business earned an Operating Income of $600,000 in 2020. The following cost data has been prepared for the
The year ended December 31, 2020.
Selling price per unit……………………………………… $50.00
Production Costs:
Direct Materials …………………………………. $10.00
Direct Labor ……………………………………. $8.00
Variable Manufacturing
Fixed Manufacturing Overhead…………....................... $450,000
Fixed Selling & Administrative Expenses……………… $300,000
Variable selling expense per unit ………………………. $10.00
Required:
- a) Using the equation method, calculate the normal capacity of the business.
- b) French’s management team is concerned about the selling expenses associated with the product and wants to reduce the variable selling expense per unit by 30%, which will see a simultaneous reduction in the total fixed selling expenses by $30,000. If they are able to accomplish this feat, it is expected that sales volume for the year will fall by 16⅔% below normal capacity. What must the new selling price per unit be if the company wishes to meet the shareholders’ profit objective for 2021? How will these changes impact the percentage margin of safety?
- c) What are the advantages and disadvantages of the scattergram method as compared to the high-low method?
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