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wolverine [178]
3 years ago
11

The cost of goods sold includes $1,200,000 of fixed manufacturing overhead; the operating expenses include $100,000 of fixed mar

keting expenses. A special order offering to buy 50,000 units for $7.50 per unit has been made to Magna. Fortunately, there will be no additional operating expenses associated with the order and Magna has sufficient capacity to handle the order. How much will operate profits be increased if Magna accepts the special order?
Business
1 answer:
Cerrena [4.2K]3 years ago
4 0

Answer:

The correct answer is $100,000.

Explanation:

Following is the information provided:

Sales @$10 per unit                                  $4,000,000

Cost of goods @$8 per unit                    ($3,200,000)

Operating cost @$0.75 per unit             <u>  ($300,000)  </u>

Profit for the year                                     <u>   $500,000  </u>

Now the company has to calculate variable costs that are relevant here. The variable cost included in cost of goods sold is:

Variable costs per unit = (Cost of goods sold - Fixed Costs included in Cost of goods) / Units Sold

The units sold can be calculated by dividing Sales with selling price per unit. Which is:

Number of units sold = $4,000,000 / $10 per unit = 400,000 Units

Now putting values in the above equation, we have:

Variable costs = ($3,200,000 - $1,200,000) / 400,000  = $5 per unit

Other variable operating costs per unit will also be calculated as it is also a variable cost here. Because the variable operating cost per unit is relevant here for decision making, it would be calculated as under:

Variable operating cost per unit = (Operating Cost - Fixed cost included) / Number of units sold

By putting values, we have:

Variable operating cost per unit = ($300,000 - $100,000) / 400,000 units

= $0.5 per unit

Now we will calculate Net benefits arising from this order. The relevant costs are variable costs and relevant revenues are at the rate $7.5 per unit.

Cost - Benefit analysis:

Savings from sales = 50,000 units * $7.5 per unit =                     $375,000

Variable cost = 50,000 units * $5 per unit =                                 ($250,000)

Variable operating cost per unit = 50,000 units * $0.5 per unit=<u> (</u><u>$25,000)</u>

Net Saving / (Loss)                                                                           $100,000

So the net gain from this opportunity will be $100,000.

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g Cole Co. began constructing a building for its own use in January 2021. During 2021, Cole incurred interest of $50,000 on spec
slava [35]

Answer: $40,000

Explanation:

Interest that is accrued as a result of a building should be capitialized to the cost of that building. The amount of interest payment that is due to the building will simply be the interest payment that the company would have avoided incurring had it not undertaken the construction of the building.

This amount is represented by the interest computed on the weighted-average amount of accumulated expenditures which in this case is $40,000 so that is the amount that should be capitalized by Cole Co.

7 0
2 years ago
A good negotiator knows
Tema [17]

Answer:

A

Explanation:

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5 0
2 years ago
Suppose sales increase by 20 percent next month. Calculate the effect that increase will have on her profit. (Round your interme
Lilit [14]

Answer:

26.50%

Explanation:

Note: The full question is attached below

Contribution margin = Sales - Variable expenses

Contribution margin = $31 - $15

Contribution margin = $16

                                          Current          Proposed

Contribution margin         $6,080             $7,296

<em>                                          ($16*380)       (6080*$1.2)</em>

Fixed Cost                         <u>($1,490</u>)            <u>($1,490)</u>

Net operating income      $4,590            $5,806

Increase in profit = ($5,806 - $4,590) / $4,590

Increase in profit = 0.2649237

Increase in profit = 26.50%

7 0
2 years ago
Tom is talking to his friend Bob, who has an interest in Freedom, LLC, about purchasing his LLC interest. Bob's outside basis in
Vlad [161]

Answer:

$19,500

Explanation:

Given that,

Bob's outside basis in Freedom, LLC, = $10,000

One-fourth share of the LLC's debt = $2,500

Bob's 704(b) capital account = $17,000

Tom bought Bob's LLC interest = $17,000

Tom's outside basis be in Freedom, LLC:

= Amount paid for interest + share of LLC’s Debt

= $17,000 + $2,500

= $19,500

5 0
3 years ago
Allen Construction purchased a crane 6 years ago for $130,000. They need a crane of this capacity for the next 5 years. Normal o
Korvikt [17]

Answer:

<u>For retaining of Old Machine Equipment</u>

Price of old equipment 3 yrs ago = $130,000

O & M cost per year = $35,000

Using the Cash flow approach

End of year   Cash flow 1   Old equipment

0                            $0            Initial Cash flow

1                         -$35,000     O & M cost per year

2                        -$35,000     O & M cost per year

3                        -$35,000     O & M cost per year

4                        -$35,000     O & M cost per year

5                        -$35,000     O & M cost per year

Hence, Annual worth = Initial cash flow + Annual cost

Annual worth = 0 - $35,000

Annual worth = -$35,000

<u>For buying of new equipment</u>

Cost of buying new crane = $150,000

Market value of old crane = $40,000

Time = 5 years

O & M cost per year = $8,000

Salvage value = $55,000

MARR = 20%

Using the Cash flow approach

End of year   Cash flow 1   New equipment

0                         $110,000    -$150,000 + $40,000

1                         -$8,000     O & M cost per year

2                        -$8,000     O & M cost per year

3                        -$8,000     O & M cost per year

4                        -$8,000     O & M cost per year

5                        $47,000     -$8,000 + $55,000

Annual worth = Initial cash flow + Annual cost + Salvage value

Annual worth = -$110,000(A/P 20%,5) - $8,000 + $55,000(A/P 20%,5)

Annual worth = -$110,000*(0.334) - $8,000 + $55,000*(0.134)

Annual worth = -$36,781.77 - $8,000 + $7,390.88

Annual worth = -$37,908.88

Conclusion: We should retain the old machine as it is more favorable than purchase of new equipment

5 0
2 years ago
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