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1. Compute the impact on the company’s overall net operating income if the company discontinued one...

1. Compute the impact on the company’s overall net operating income if the company discontinued one of its departments based on the following facts: The contribution margin in the department is $50,000 per year. Fixed expenses charged to the department are $65,000 per year. It is estimated that $40,000 of these fixed expenses could be eliminated if the department is discontinued.

2. Compute the effect, if any, on the company’s overall net operating income if the company accepts a special order of 6,000 units of product Y45 for $13.70 each. Product Y45’s unit product cost is $11.50 based on the following facts:

Direct materials………………………………      $2.50

Direct labor ……………………………………        1.90

Variable manufacturing overhead ….        2.30

Fixed manufacturing overhead ……….       4.80

Total product cost …………………………. $11.50

Direct labor is a variable cost. The special order would have no effect on the company's total fixed manufacturing overhead costs. The customer would like modifications made to product Y45 that would increase the variable costs by $8.10 per unit and that would require an investment of $20,000 in special molds that would have no salvage value. This special order would have no effect on the company's other sales. The company has ample spare capacity for producing the special order.

3. Compute the overapplied or underapplied overhead if the company uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. For the month of March, the company’s estimated manufacturing overhead cost was $300,000 based on an estimated activity level of 100,000 direct labor-hours. Actual overhead amounted to $325,000 with actual direct labor-hours totaling 110,000 for the month.

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ekkarill92 answered 2 years ago
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