If the average family is charged $6,000 for services and a burial container, how many families must be served to clear the break-even point?
If the banker believes John will only serve 100 families during the first year in business, how much will the business lose during its first year of operation?
If John believes his profits will be at least $100,000 during the first year, how much is he anticipating for total revenue?
The banker has suggested that John can reduce his fixed costs by $150,000 if he will not buy any vehicles. John can instead rent vehicles as needed. The variable cost of renting is $700 per family served. Will this suggestion help John reach the break-even point sooner?
Question 6 (5 points)
XYZ manufactures tote bags. The forecasted income statement for the year before any special orders included sales of $4,000,000 (sales price is $10 per unit.) Manufacturing cost of goods sold is anticipated to be $3,200,000. Selling expenses are expected to be $300,000, and operating income is projected at $500,000. Fixed costs included in these forecasted amounts are $1,200,000 for manufacturing cost of goods sold and $100,000 for selling expenses. Murphy is offering a special order to buy 50,000 tote bags for $7.50 each. There will be no additional selling expenses, and sufficient capacity exists to manufacture the extra tote bags.
Requirements: Prepare an incremental analysis schedule to demonstrate what amount operating income would increase or decrease as a result of accepting the special order.
Hint: think differences between accepting the order or not.
Question 7 (6 points)
RSW Company manufactures 10,000 units of wheel sets for use in its annual production. Costs are as follows: direct materials are $20,000; direct labor is $55,000; variable overhead is $45,000; and fixed overhead is $70,000. Murphy Company has offered to sell RSW 10,000 units of wheel sets for $18 per unit. If RSW accepts the offer, some of the facilities presently used to manufacture wheel sets could be rented to a third party at an annual rental of $15,000. Additionally, $4 per unit of the fixed overhead applied to wheel sets would be totally eliminated.
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