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    Managerial Accounting-Budgeting

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    Differential Analysis-knowing which costs are relevant etc.

    Lewis company:

    production and sales information for Lewis Company.

    Product information

    Prod B

    Beginning inventory
    0

    Units produced
    10,000

    Units sold
    9,000

    Selling price per unit
    $300

    Variable costs per unit

    Direct material
    120

    Direct labor
    60

    Variable overhead
    40

    Variable selling and administrative
    10

    Fixed costs

    Fixed manufacturing overhead
    250,000

    Fixed selling and administrative
    100,000
    *******************************

    Lewis Company

    Absorption Income Statement

    For the period ending Dec. 31, 2012

    Sales
    $2,700,000

    Cost of goods sold
    2,205,000

    Gross profit (margin)
    $495,000

    Selling and administrative expenses
    180,000

    Net income
    $315,000

    Lewis Company receives an offer to make a new product for a new customer. The product is called C. Customer wants 1100 units. Product see has the same cost structure as Product B above with three exceptions. The new customer will only pay $245.00 per unit. Direct materials costs will onlu decrease $15 per unit and Lewis does not have to incur any variable selling and admin expenses.

    Make a list of expenses and amounts that are relevent for this decision. How much with the sale of this product contributes to the profitability of Lewis?
    What if the company only paid $225.00 per unit. How does that change the contribution towards profitability? If you were the manager would you accept this order? What cosiderations other than financial would affect the decision?

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    Solution Preview

    See attached

    A) Make a list of expenses and amounts that are relevant for this decision.
    Expenses for Product C
    Variable expense is 1100 X total variable cost per unit except for selling and administration = 1100 X $205 = $225,500. Follow the formula above.
    Fixed expense is the total expense ($250,000) X 1,100/10,000). This is the portion of fixed that is ...

    Solution Summary

    Managerial Accounting and budgeting along with Income Statements to determine product mix. Considering all expenses to determine profitability.

    $2.19

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