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Serhud [2]
3 years ago
15

Gallerani Corporation has received a request for a special order of 4,300 units of product A90 for $26.90 each. Product A90's un

it product cost is $26.40, determined as follows: Direct materials$2.55 Direct labor 7.85 Variable manufacturing overhead 6.95 Fixed manufacturing overhead 9.05 Unit product cost$26.40 Assume that direct labor is a variable cost. The special order would have no effect on the company's total fixed manufacturing overhead costs. The customer would like modifications made to product A90 that would increase the variable costs by $3.30 per unit and that would require an investment of $22,000 in special molds that would have no salvage value. This special order would have no effect on the company's other sales. The company has ample spare capacity for producing the special order. The annual financial advantage (disadvantage) for the company as a result of accepting this special order should be:
Business
1 answer:
Ksivusya [100]3 years ago
4 0

Answer:

Effect on income= $4,875 increase

Explanation:

Giving the following formula:

Production costs:

Direct materials$2.55

Direct labor 7.85

Variable manufacturing overhead 6.95

Total= $17.35

Special offer:

Selling price= $26.9

Number of units= 4,300

Increase in variable cost= $3.3

Increase in fixed costs= $22,000

<u>Because it is a special offer and there is unused capacity, we will take into account only the incremental fixed costs.</u>

<u></u>

<u>To calculate the effect on income, we need to use the following formula:</u>

Effect on income= incremental contribution margin - incremental fixed costs

Effect on income=  4,300*(26.9 - 17.35 - 3.3) - 22,000

Effect on income= $4,875 increase

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Which of the following is​ true? A. Both microeconomics and macroeconomics deal with same economic issues of​ inflation, unemplo
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A MAIN reason cited by American businesses for outsourcing jobs to other countries is the high cost of
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Read 2 more answers
Steinberg Corporation and Dietrich Corporation are identical companies except that Dietrich is more levered. Both companies will
valentina_108 [34]

Answer:

a-1.

Steinberg's debt:

Steinberg's equity:

a-2.

Dietrich's debt:

Dietrich's equity:

b. Disagree as the values of the two companies are the same ( please see below Explanation for further clarification)

Explanation:

It is clear to determine that the value of debt and equity of the two firms is the present value of cash flow received in 1 year, discounted at 12%.

a-1.

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- Debt holder of Steinberg will receive $910,000 regardless of its EBIT. -=> Thus, Steinberg's debt present value = 910,000 / 1.12 = $812,500

- Given the probability of expansion and recession, Steinberg's shareholder will receive the amount equal EBIT -  amount paid to its debt holders: 0.8 x (3,700,000 - 910,000) + 0.2 x (1,100,000-910,000) = $2,270,000.

=> Thus, Steinberg's equity present value = $2,270,000/ 1.12 = $2,026,786

=> Value of Steinberg = D+E = 812,500 + 2,026,786 = $2,839,286 ( note: no tax applied)

a-2.

In one year:

- Debt holder of Dietrich will receive $1,200,000 when the business expands while only $1,100,000 when the business goes into recession (i.e business loss is 100,000):  0.8 x 1,200,000 + 0.2 x 1,100,000 = $1,180,000

=> Thus, Dietrich's debt present value = 1,180,000 / 1.12 = $1,053,571

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=> Thus, Dietrich's equity present value = 2,000,000 / 1.12 = $1,785,714

=> Value of Steinberg = D+E =$1,053,571+$1,785,714  = $2,839,286( note: no tax applied)

a-3.

From the calculation, it is clear that the values of the two companies are the same.

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