(1)
a.
Volume 82000 106600
Selling price $46.00 $46.00
Direct materials $6.50 $6.50
Direct labor $9.00 $9.00
Variable manufacturing overhead $2.50 $2.50
Variable selling expenses $2.70 $2.70
Contribution margin per unit $25.30 $25.30
Total contribution margin $2,074,600 $2,696,980
Fixed manufacturing overhead $328,000 $328,000
Fixed selling expenses $369,000 $499,000
Total profit $1,377,600 $1,869,980
82,000 x 1.30 = 106,000
Note that when the volume increases to 106,000, the profit is $1,869,980. Therefore the financial advantage is ($1,869,980 – $1,377,600) = $492,380.
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b.
The additional investment is justified as there is a financial advantage of $492,380.
(2)
Sales volume = 24,600; Fixed cost for permits and licenses = $19,680
So, per unit basis fixed cost = 19680/24600 = $0.80
Direct materials $6.50
Direct labor $9.00
Variable manufacturing overhead $2.50
Variable shipping cost $2.10
Fixed cost for permits and licenses $0.80
Import duty $2.70
Total cost $23.60
So, breakeven selling price = total cost per unit = $23.60
(3)
Direct materials $6.50
Direct labor $9.00
Variable manufacturing overhead $2.50
So, the minimum cost that goes with these parts directly and which should be recovered = $6.5+$9+$2.5 = $18
(4)
a.
Yearly contribution margin (found in part-1) = $2,074,600
25% of this is $518,650
Bi-monthly contribution margin that will be foregone = $518,650 / 6 = $86,441.67
b.
Fixed cost that can be avoided = ($328,000/6) x 60% + ($369,000/6) x 80% = $82,000
c.
Disadvantage of $86,441.67 – $82,000 = $4,441.67
(5)
Avoidable direct materials $6.50
Avoidable direct labor $9.00
Avoidable variable overhead $2.50
Avoidable variable selling expense ($2.7 x 1/3) $0.90
Avoidable fixed overhead ($4 x 30%) $1.20
Total avoidable cost $20.10