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Homework answers / question archive / John Boyd Corporation manufactures and sells 1,000 tractors each month
John Boyd Corporation manufactures and sells 1,000 tractors each month. The primary component in each tractor is the motor. John Boyd has the monthly capacity to produce 1,300 motors. The variable costs associated with manufacturing each motor are shown below:
Direct materials: $24
Direct labor: $16
Variable Manufacturing Overhead: $29
Fixed manufacturing overhead per month (for up to 1,300 units of production) averages $27,000. Joan Reid, Inc. has offered to purchase 200 motors from John Boyd per month to be used in its own outboard motors.
Refer to the information above. If Joan Reid s order is rejected, what will be John Boyd's average unit cost of manufacturing each motor?
a. $68 per unit.
b. $70 per unit.
c. $96 per unit.
d. Some other amount.
Refer to the information above. Assuming John Boyd wants to earn a pretax profit of $10,000 on this special order, what price must it charge Joan Reid?
e. $69 per unit.
f. $83 per unit.
g. $95 per unit.
h. Some other amount.
JCN Industries normally produces and sells 5,000 keyboards for personal computers each month. Variable manufacturing costs amount to $25 per unit, and fixed costs are $146,000 per month. The regular sales price of the keyboards is $86 per unit. JCN has been approached by a foreign company that wants to purchase an additional 1,000 keyboards per month at a reduced price. Filling this special order would not affect JCN's regular sales volume or fixed manufacturing costs.
Refer to the information above. On the basis of the above information only, which of the following is not true?
i. At the 5,000-unit level of production, JCN's average cost per unit is $54.20.
j. At the 6,000-unit level of production, JCN's average cost per unit is $49.33.
k. It would not be profitable for JCN to consider the special order at a price less than $49 per unit.
l. The fixed manufacturing costs of $146,000 is not relevant to this decision regarding the special order.
1) Option(c) $96 per unit
Explanation:
Average unit cost = Direct material + direct labor + Variable + fixed
=$24 + $16 + $29 +($27,000/1,000)
==$24 + $16 + $29 +27
=$96 per unit
Thus, average unit cost of manufacturing each motor would be $96 per unit.
2) Option (h) some other amount
Calculation of sale price per unit on special order.
Sales price per unit = variable cost + Profit required per unit
= ($24 + $16 + $29) + (10,000/200)
=$69 +$50
=$119 per unit
Thus, sale unit price per unit should be charge by company is $119 per unit.
3) Option (j) At the 6,000 unit level of production JCN?s average cost per unit is $49.33.
Calculation of average cost per unit at 5,000 unit level.
Average unit cost = variable cost + fixed cost per unit
=$25 + ($146,000 / 6,000)
= (25 + 24.33)
=$49.33
The fixed costs would remain same and there would be no additional costs incurred by company for special order and therefore is not relevant for decision making. Company should charge not less than $25 per unit which is the variable cost for the special order.
Thus, from the given statement it would not be profitable for JCN to consider the special at a price less than $49 per unit is not true.
