Bhil

Sell or Process Further Jensen Manufacturing Company makes a partially completed assembly unit that it sells for $36 per unit. Normally, 42,000 units are sold each year. Variable unit cost data on the assembly are as follows: Direct material $10 Direct labor 8 Variable manufacturing overhead 4 The company is now using only 70% of its normal capacity; it could fully use its normal capacity by processing the assembly further and selling it for $41 per unit. If the company does this, material and labor costs will each increase by $2 per unit and variable overhead will go up by $1 per unit. Fixed costs will increase from the current level of $160,000 to $180,000. Prepare an analysis showing whether Jensen should process the assemblies further. Use a negative sign with answer to only indicate a loss from processing assemblies further; otherwise do not use negative signs with your answers. Sell of Process Further Differential Analysis $ Differential revenue Differential costs Direct material…

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Elroy Racers makes bicycles. It has always purchased its bicycle tires from the M. Wilson Tires at $25 each but is currently considering making the tires in its own factory. The estimated costs per unit of making the tires are as follows: Direct materials   $8   Direct labor   $5   Variable manufacturing overhead   $7   The company’s fixed expenses would increase by $60,000 per year if managers decided to make the tire.(b)What qualitative factors should Elroy Racers consider in making this decision?

A-2

Answer

9

7