Question

(1) A company expects to produce and sell a single product. Management desires a 14% return on assets of $725,000. The following additional company information is available:                                                     

                Variable costs (per unit)                               

                    Production costs $58

                    Nonproduction costs $11

                Fixed costs (in total)                                       

                    Overhead                                       $179,872

                    Nonproduction $49,984

What is the selling price per unit, assuming the company produced and sold 17,600 units?

Group of answer choices

None of the answers are the correct selling price.

$82.06

$87.83

$79.50

$89.25

(2) Orange Company has 10,000 units of its sole product that it produced last year at a cost of $50 each. This year’s model is superior to last year’s and the 10,000 units cannot be sold  for their regular selling price of $75 each. Orange has two alternatives for these items:   

(1) they can be sold to a wholesaler for $5 each, or

(2) they can be reworked at a total cost of $190,000 and then sold for $22.50 each.

The company has enough idle capacity to rework these items without affecting any new production. Which choice would increase the company’s profits the most?

Group of answer choices

Scrapping, because profit will increase by $50,000 more than reworking.

Reworking, because profit will increase by $15,000 more than scrapping.

Reworking because profit will increase by $50,000 more than scrapping.

Reworking, because profit will increase by $35,000 more than scrapping.

Scrapping, because profit will increase by $15,000 more than reworking.

Answer 1

1)	Correct Option B i.e. $87.83
	Calculation of Selling Price
	Production cost	1,020,800
	Nonproduction costs	193,600
	Overhead	179,872
	Nonproduction	49,984
	Add INCOME	101500	(725000*14%)
	Total Sales Value	1,545,756
	No. of Units	17,600
	Selling price per unit	87.83
2)	Correct Option E
		Sale as Scrap	Rework	Difference
	Sales price if units are reworked	225000
	Cost of Rework		-190000
	Sales of units as scrap	50000
	Incremental Income/(Loss)	50000	35000	15000
	The company should	rework and sell the units
	Scrapping, because profit will increase by $15,000 more than reworking.