Question

Swifty Corporation manufactures a product with a unit variable cost of $100 and a unit sales price of $176. Fixed manufacturing costs were $480000 when 10000 units were produced and sold. The company has a one-time opportunity to sell an additional 1000 units at $145 each in a foreign market which would not affect its present sales. If the company has sufficient capacity to produce the additional units, acceptance of the special order would affect net income as follows:

Income would increase by $45000.

Income would increase by $3000.

Income would increase by $145000.

Income would decrease by $3000.

Coronado Industries is using the target cost approach on a new product. Information gathered so far reveals:

Expected annual sales	350000 units
Desired profit per unit	$0.35
Target cost	$168000

What is the target selling price per unit?

$0.48

$0.35

$0.70

$0.83

Answer 1

1 calculation of Net income for 10,000 units

Particulars	$
Sales (10,000 × 176)	1,760,000
Less variable cost (10,000 × 100)	1,000,000
Contribution margin	760,000
Less fixed cost	480,000
Net income	280,000

Net income for 10,000 units sold is $280,000

Calculation of net income for one time special order 1,000 units

Particulars	$
Sales (1,000 × 145)	145,000
Less variable cost	100,000
Net income	45,000

Net income for the one time special order is $45,000

Fixed manufacturing cost is not occurred for special order.

Increase in net income by $45,000

Option income would by $45,000 is correct.

The above calculations clearly indicate that the other options are incorrect.

2 Expected annual sales = 350,000 units

Target cost = $168,000

Desired profit = $0.35

Target cost per unit = 168,000 / 350,000 = $0.48

Target selling price per unit

= desired profit + target cost per unit

Target selling price per unit

= 0.35 + 0.48 = $0.83

Target selling price per unit is $0.83

Option $0.83 is correct

The above calculations and equations clearly indicate that other options are incorrect.

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