Question

Burns Industries currently manufactures and sells 23,000 power saws per month, although it has the capacity to produce 38,000 units per month. At the 23,000-unit-per-month level of production, the per-unit cost is $71, consisting of $43 in variable costs and $28 in fixed costs. Burns sells its saws to retail stores for $83 each. Allen Distributors has offered to purchase 5,300 saws per month at a reduced price. Burns can manufacture these additional units with no change in its present level of fixed manufacturing costs.
14.

Required information

Assume that Allen Distributors offers to purchase the additional 5,300 saws at a price of $50 per unit. If Burns accepts this price, Burns' monthly gross profit on sales of power saws will:

Increase by $265,000.

Decrease by $174,900.

Increase by $37,100.

Decrease by $111,300.

15.

Required information

Using an incremental analysis approach, Burns should consider accepting this special order only if the price per unit offered by Allen is at least:

$28.

$71.

$83.

$43.

16.

Required information

Burns decides to accept the special order for 5,300 units from Allen at a unit sales price that will add $106,000 per month to its operating income. The unit price Burns charging Allen is:

$43.

$63.

$71.

$83.

Answer 1

Answer:

Increase by $37,100.

It will accept any time the price is above $43 with the condition it will not incur in additional fixed cost.

$63. is the sales price that generates 106,000 dollar of operating income

Explanation:

As the units will not inccur in any additional fixed cost we should check for the contribution margin this units will provide:

50 dollars - 43 dollar of variable cost = 7 dollars

5,300 saws x $7 = 37,100

The sales reveues will increase by that amount.

(5,300 x $43 dollars each in cost + 106,000 contribution )/5,300 = sales price

sales price = 63