Q#1HASF & Company produces cleaning kits for shotguns. The production capacity available will enable the firm to produce 50,000 kits annually. A projected income statement for next year shows
Sales 460,000
Costs of goods sold 296,000
Gross profit 164,000
Selling and administrative expenses 125,000
Net income 39,000
Fixed manufacturing overhead costs 40% of the cost of goods sold. Regular selling price per unit is 10 A 10% sales commission is paid to sales representatives for each kit sold. The purchasing department of a large discount chain has offered to purchase 1500 kits at $6 each. Company sales manager’s initial response is to refuse the offer because he concludes that the $6 price is below the firm’s average cost The sales commission would not be paid on the special order.
What is the lowest price per unit the firm could accept if it wants to earn annual net income of 48,000 ( ignore sales commission )
Answers
Answer:
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Q#1HASF & Company produces cleaning kits for shotguns. The production capacity available will enable the firm to produce 50,000 kits annually. A projected income statement for next year shows
Sales 460,000
Costs of goods sold 296,000
Gross profit 164,000
Selling and administrative expenses 125,000
Net income 39,000
Fixed manufacturing overhead costs 40% of the cost of goods sold. Regular selling price per unit is 10 A 10% sales commission is paid to sales representatives for each kit sold. The purchasing department of a large discount chain has offered to purchase 1500 kits at $6 each. Company sales manager’s initial response is to refuse the offer because he concludes that the $6 price is below the firm’s average cost The sales commission would not be paid on the special order.
What will be the impact on net income??
Expert Answer
Answers: Profit $3,209 . Explanation: Fixed component in cost of goods sold = $296000*.40 = $118,400 Variable compo