Question

Given
Sales in units	10,000
Variable manufacturing costs per unit	5
Variable administrative costs per unit	2
Fixed manufacturing costs per unit	2
Fixed administrative costs per unit	1
Variable costs	75%	of sales
Selling price per unit?

		$2.22
		$9.33
		$17.50
		$20

Given for XM Company the following data for January 20X1.
Direct material purchased and used in production accounted for $	50000
Units purchased	5000
The standard units	4200
Managers estimate price variance not to exceed +1% of the (actual units X standard price) as favorable variance. The standard price should be

	1.	Greater than actual price paid for each unit
	2.	Smaller than actual price paid for each unit
	3.	The same as the actual price paid for each unit
	4.	More information is needed

Assume San Juan Printing Company asked you to evaluate two products (A&B). The following data pertains to these products. Product A: Selling price per unit 60; Variable cost per unit 40; Total fixed costs 20,000; Product A: Selling price per unit 80; Variable cost per unit 50; Total fixed costs 20,000. Analyzing the data at what production level do you recommend the company to adopt (1) product A, (2) product B, and at what production level the company's decision to produce A or B will be indifferent.

Answer 1

1.

Variable Cost per unit:

- Variable manufacturing cost = $5 per unit

- Variable administrative cost = $ 2 per unit

Total Variable cost = $7 per unit,

Since variable cost is 75% of sales, thus selling price = $7/ 75% = $9.33 per unit.

Thus the correct option is ------B i.e $9.33

2.

Given for XM Company ,

Managers estimate price variance not to exceed +1% of the (actual units X standard price) as favorable variance.

Price variance is favourable when less price is paid for purchases i.e when the actual price paid is lower than the standard price then the favourable price variace will exist which resembles the lower cost to the company as a whole.

So the standard price should be greater than actual price paid so as to have a fabourable variance.

The correct option is 1. i.e Greater than actual price paid for each unit.

3.

San Juan Printing Company asked you to evaluate two products (A&B)

For Product A : selling price per unit = $60 , variable cost per unit = $40 and total fixed cost is $20000,

contribution per unit = Selling price per unit - variable cost per unit = $60-$40 = $20.

production level to get the break even = Fixed cost / contribution per unit = $20000/20 = 1000 units

For Product B : Selling price per unit = $80; Variable cost per unit = $50; Total fixed costs= $20,000

Contribution per unit = Selling price per unit - Variable cost per unit = $80-$50 = $30 per unit

production level to get the break even = Fixed cost / contribution per unit = $20000/30

production level to get the break even  = 667.67 units i.e 668 units.

Based on the problem structure no Indifferent point can be calculated as the fixed cost in both case is same as $ 20000 and the Selling price is different.