I had four questions in an accounting exam today that somewhat confused me. I was hoping I would be able to obtain your help.
The first question and second question (they are linked):
Liffick Corporation is a specialty component manufacturer with idle capacity. Management would like to use its extra capacity to generate additional profits. A potential customer has offered to buy 6,200 units of component VFG. Each unit of VFG requires 8 units of material C79 and 6 units of material X70. Data concerning these two materials follow:
C79... 32420 units in stock, 3.8 original cost/unit, 3.35 market price/unit, 3.1 disposal cost/unit
X70... 31060 units in stock, 9.3 original cost/unit, 9.6 market price/unit, 8.35 original cost
Material C79 is in use in many of the company's products and is routinely replenished. Material X70 is no longer used by the company in any of its normal products and existing stocks would not be replenished once they are used up.
What is the relevant cost of C79?
I don't remember the multiple choice answers except for the one I put. My calculations were 3.35 market price multiplied by all 49600 units needed because the units can be used elsewhere and any additional needed beyond stock would be purchased at market price. So I got 166,160.
What would be the relevant cost of the materials, in total, for purposes of determining a minimum acceptable price for the order for product VFG?
A) $528,551
B) $523,280
C) $476,350
D) $484,455
For this one, I did 31060 multipled by the disposal value of 8.35, plus the additional 6140 units needed multipled by market price of 9.6. I added that value to the 166,160 from the previous question and got 484,455.
I don't remember the other question as well, but it went along the lines of the following:
A company currently produces 300,000 units of a product. The costs are as follows:
Variable overhead... 119,000
Supervisor salary... 102500
General/administrative costs (not including supervisor salary)... 270000
Direct labor and direct materials... 472500 (I don't remember the exact numbers but I remember that the sum of all the costs was 964000)
Another company offers to sell the units to this company for 2.95 per unit. If the offer is accepted, general/administrative costs will decrease by 76,500. The severance package for the manager will be equivalent to 20% of her annual salary per year, for 5 years. The facility can be rented out for 225,000 per year.
What is the opportunity cost of in-house production?
A. 0
B. Don't remember but I think 100,000
C. 225,000
D. Don't remember but high 300,000s
E. None of the above
What is the price per unit at which the company will be indifferent about the offer?
A. 2.50
B. 2.57
C. 2.95
D. 3.25
E. None of the above
Thanks a lot for your help!
The first question and second question (they are linked):
Liffick Corporation is a specialty component manufacturer with idle capacity. Management would like to use its extra capacity to generate additional profits. A potential customer has offered to buy 6,200 units of component VFG. Each unit of VFG requires 8 units of material C79 and 6 units of material X70. Data concerning these two materials follow:
C79... 32420 units in stock, 3.8 original cost/unit, 3.35 market price/unit, 3.1 disposal cost/unit
X70... 31060 units in stock, 9.3 original cost/unit, 9.6 market price/unit, 8.35 original cost
Material C79 is in use in many of the company's products and is routinely replenished. Material X70 is no longer used by the company in any of its normal products and existing stocks would not be replenished once they are used up.
What is the relevant cost of C79?
I don't remember the multiple choice answers except for the one I put. My calculations were 3.35 market price multiplied by all 49600 units needed because the units can be used elsewhere and any additional needed beyond stock would be purchased at market price. So I got 166,160.
What would be the relevant cost of the materials, in total, for purposes of determining a minimum acceptable price for the order for product VFG?
A) $528,551
B) $523,280
C) $476,350
D) $484,455
For this one, I did 31060 multipled by the disposal value of 8.35, plus the additional 6140 units needed multipled by market price of 9.6. I added that value to the 166,160 from the previous question and got 484,455.
I don't remember the other question as well, but it went along the lines of the following:
A company currently produces 300,000 units of a product. The costs are as follows:
Variable overhead... 119,000
Supervisor salary... 102500
General/administrative costs (not including supervisor salary)... 270000
Direct labor and direct materials... 472500 (I don't remember the exact numbers but I remember that the sum of all the costs was 964000)
Another company offers to sell the units to this company for 2.95 per unit. If the offer is accepted, general/administrative costs will decrease by 76,500. The severance package for the manager will be equivalent to 20% of her annual salary per year, for 5 years. The facility can be rented out for 225,000 per year.
What is the opportunity cost of in-house production?
A. 0
B. Don't remember but I think 100,000
C. 225,000
D. Don't remember but high 300,000s
E. None of the above
What is the price per unit at which the company will be indifferent about the offer?
A. 2.50
B. 2.57
C. 2.95
D. 3.25
E. None of the above
Thanks a lot for your help!
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