Question

The following are costs related to the marketing and manufacture of novelty football helmets, primarily used to sell nachos at NFL games:

Manufacturing costs:

Direct Materials $.50

Direct Labour .40

Variable manufacturing overhead .30

Fixed manufacturing overhead .50

Marketing costs:

Variable .50

Fixed .20

The above costs relate to the 100,000 helmet production level.

Required:

Assume each situation below is independent.

1. Assume that at the end of the year 15,000 units of the helmets are left in inventory. What would be the unit cost used on the balance sheet?

2. If the company sells 5,000 more helmets at a selling price of $10.00 per unit, how much would company net income increase or decrease?

3. The company wants to enter a foreign market in which price competition is keen. The company wishes to sell a one –time only special order for 20,000 units. It expects the only variable marketing costs will be shipping costs of $.40 per unit. The fixed cost of obtaining the contract would be $10,000. Regular sales would be unaffected. Calculate the minimum selling price to break even.

4. The company has an inventory of 1,000 helmets that must be sold immediately at reduced prices. Otherwise, the inventory will be worthless. What is the relevant cost for establishing the minimum selling price?

Answer 1