Zachary Modems has excess production capacity and is considering the possibility of making and selling paging equipment. The following estimates are based on a production and sales volume of 3,000 pagers. Unit-level manufacturing costs are expected to be $40. Sales commissions will be established at $3.00 per unit. The current facility- level costs, including depreciation on manufacturing equipment ($80,000), rent on the manufacturing facility ($70,000), depreciation on the administrative equipment ($18,000), and other fixed administrative expenses ($81,950), will not be affected by the production of the pagers. The chief accountant has decided to allocate the facility-level costs to the existing product (modems) and to the new product (pagers) on the basis of the number of units of product made (i.e., 7,000 modems and 3,000 pagers).

Zachary Modems has excess production capacity and is considering the possibility of making and selling paging equipment. The following estimates are based on a production and sales volume of 3,000 pagers. Unit-level manufacturing costs are expected to be $40. Sales commissions will be established at $3.00 per unit. The current facility- level costs, including depreciation on manufacturing equipment ($80,000), rent on the manufacturing facility ($70,000), depreciation on the administrative equipment ($18,000), and other fixed administrative expenses ($81,950), will not be affected by the production of the pagers. The chief accountant has decided to allocate the facility-level costs to the existing product (modems) and to the new product (pagers) on the basis of the number of units of product made (i.e., 7,000 modems and 3,000 pagers).

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter11: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 3CMA: Aril Industries is a multiproduct company that currently manufactures 30,000 units of Part 730 each...

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