Manufacturing overheads are applied to production at the rate of £18.00 a directlabour hour. This overheads rate is made up of the following components:Variable factory overheadFixed factory overhead - direct- allocatedApplied manufacturing overhead rate£6.008.004.0018.00Additional costs usually incurred in connection with sales of electric motors includesales commissions of 5 per cent and freight expense of £1.00 a unit.In determining selling prices, GB adds a 40 per cent mark-up to the product cost. Thisprovides a suggested selling price of £28 for the motor. The marketing department, how-ever, has set the current selling price at £27.00 to maintain market share. The orderwould require additional fixed factory overheads of £15,000 a month in the form of super-vision and clerical costs. If management accepts the order, 30,000 motors will be manu-factured and delivered to Il each month for the next four months.Required:(a) Prepare a financial evaluation showing the impact of accepting the II order. What isthe minimum unit price that the business's management could accept without reduc-ing its operating profit?(b) State clearly any assumptions contained in the analysis of (a) above and discuss anyother organisational or strategic factors that GB should consider. 10.8 The GB Company manufactures a variety of electric motors. The business is currentlyoperating at about 70 per cent of capacity and is earning a satisfactory return oninvestment.International Industries (II) has approached the management of GB with an offer to buy120,000 units of an electric motor. Il manufactures a motor that is almost identical to GB'smotor, but a fire at the II plant has shut down its manufacturing operations. Il needs the120,000 motors over the next four months to meet commitments to its regular customers;Il is prepared to pay £19 each for the motors, which it will collect from the GB plant.GB's product cost, based on current planned cost for the motor, is:Direct materialsDirect labour (variable)Manufacturing overheadsTotal£5.006.009.0020.00

The performance of a special order may be evaluated using incremental analysis or differential…

Answered: 10.8 The GB Company manufactures a…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Chris micro chip produces and sell its product at the price of P160 with its variable cost of P64. The company's fixed cost is 2,304,000 per annum. The company operates at a margin of safety which was at 40%. (1) Find the total sales made by the company. (II) The company wants to introduce highly sophisticated modern chip completely new to the market with high research costs. Suggest the pricing method which will be suited for its new product.
BT&T Corporation manufactures telephones. Recently , the company produced a batch of 600 defective telephones at a cost of $9,000. BT &T can sell these telephones as scrap for $9 each. It can also rework the entire batch at a cost of $6,500 , after which the telephones could be sold for $20 per unit. If BT&T reworks the defective telephones , by how much will its operating income change ?
ABC Company (ABC) currently produces 6,000 units of M1 (a component uses in many electric appliances) per year under normal capacity and sells M1 at $66 per unit. The company is considering the possibility to buy a similar component from an outside supplier. If ABC accepts the supplier’s offer, all variable manufacturing costs will be eliminated, but 60% of the fixed manufacturing overhead will have to be absorbed by other products. The released factory equipment could be used to produce a net income of $66,000. The cost to produce M1 is as follows.Direct materials $105,000 Direct labor $45,000Total overhead $90,000. The total overhead costs include variable handling costs of $5 per unit. The remainder of the overhead costs consists of 10% variable costs and 90% fixed costs. A very good foreign manufacturer, 3Z Company (3Z) has offered to sell the component at $36 per unit, plus $0.5 shipping cost per unit. GQ Company (GQ), a new local manufacturer, has alsooffered to…
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Praveen Co. manufactures and markets a number of rope products. Management is considering the future of Product XT, a special rope for hang gliding, that has not been as profitable as planned. Since Product XT is manufactured and marketed independently of the other products, its total costs can be precisely measured. Next year’s plans call for a $200 selling price per 100 yards of XT rope. Its fixed costs for the year are expected to be $270,000, up to a maximum capacity of 700,000 yards of rope. Forecasted variable costs are $140 per 100 yards of XT rope. Required 1. Estimate Product XT’s break-even point in terms of (a) sales units and (b) sales dollars. 2. Prepare a contribution margin income statement showing sales, variable costs, and fixed costs for Product XT at the break-even point.
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