Differential Analysis-knowing which costs are relevant etc.
production and sales information for Lewis Company.
Selling price per unit
Variable costs per unit
Variable selling and administrative
Fixed manufacturing overhead
Fixed selling and administrative
Absorption Income Statement
For the period ending Dec. 31, 2012
Cost of goods sold
Gross profit (margin)
Selling and administrative expenses
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?
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 ...
Managerial Accounting and budgeting along with Income Statements to determine product mix. Considering all expenses to determine profitability.