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Q1) Generators, Inc. manufactured emergency backup generators for use in large commercial buildings. Costs of manufacturing and marketing generators at company's normal volume of 3,000 units per month aregiven

Costs per Unit for Generators

Unit Manufacturing costs:
Variable Materials $1,000  
Variable Labor 1,500  
Variable Overhead 500  
Fixed Overhead 1,200  
Total Manufacturing Cost   $4,200
Unit Marketing Costs:
Variable 500  
Fixed 1,400  
Total Marketing Cost   1,900
Total Unit Cost:   $6,100

Following problems refer only to data given above. Unless otherwise stated, suppose there is no connection between conditions describeed in each of problems, each is to be treated independently. Unless otherwise stated, regular selling price of $7,400 per unit must be assumed.

On March 1, a contract offer is made to Redi-Watt by federal government to supply 500 units to Veterans Administration hospitals for delivery by March 31. As of unusually large number of rush orders from their regular customers, Redi-Watt plans to make 4,000 units in March, that will use all available capacity. If government order is accepted, 500 units normally sold to regular customers would be lost to competitor. Contract given by government would reimburse government's share of March manufacturing costs (fixed and variable) plus pay  fixed fee (profit) of $500,000. There would be no variable marketing costs incurred on government's units. What impact would accepting government contract have on March income?

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M918805

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