ACT 5060 � Accounting for Decision Makers

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ACT 5060–Accounting for Decision MakersHW #4Directions: Answer allfivequestions.Please submit your work in Wordor PDF formatsonly.You can submit an Excel file to support calculations, but please “cut and paste” yoursolutions into the Word or PDF file.Be sure to show how you did your calculations.Also,please be sure to include your name at the top of the first page of your file.Youcan use anysources you wish, except for other people.Please be sure to document any source you use. Theassignmentis due by 9:00 AM on Wednesday,November19th.Please run spell check andproofread your answers.If you have any questions,Question #1Consider the following information, prepared based on a monthly capacity of 80,000 units:CategoryCostper UnitVariable manufacturing costs$18Fixed manufacturingcosts$5Variableselling costs$4Fixedselling costs$3Capacity cannot be added in the month and the firm currently sells the product for $33 per unit.Consider each of these scenarios independent of each other.a) The company is currently producing 72,000 units per month. A potential customer hascontacted the firm and offered to purchase 8,000 units this month only. The customer iswilling to pay $28 per unit. Since the potential customer approached the firm, there will be novariable selling costs incurred. Should the company accept the special order? Why or whynot?Be specific.Current Cont pu = SP pu–VC pu = 33–(18+4) = $11 puSo Total COnt for 72,000 units = 72,000*11 = $792,000Fixed cost is Capacity based. SO Fixed Mfg + Selling cost = 80,000*($5+3) = $640,000So Net Income = Total Cont–Total FC = 792,000-640,000 = $152,000Addl Contriobution pu from Spl order = SP pu–VC pu = 28–18 = $10 pu.So Addl contribution will be 8000*$10 = $80,000So Spl order will give addl Net income of $80,000 without affecting existing operations. So itshould be accepted to fully utilize the capacity.Fixed costs will not be affected as they are period costs & will be incurred irrespective of Splorder. Hence FC are not relevant to Spl order decsion making.b) Assume the same facts as in part a, except that the company is producing 80,000 units permonth. Should the company accept the special order? Why or why not?Be specific.

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