relevant cost

relevant cost

Dean company’s unit costs of manufacturing and selling a given item at the planned activity level of 20,000 units per month are as follows’ Manufacturing costs (Direct materials $43., Direct labor 0.95, variable overhead 1.10, fixed overhead 1.05), Selling expenses (variable 2.90, fixed 1.05) 1. compute the planned annual operating income at a selling price of $19 per unit. 2. Compute the expected annual operating income if the volume can be increased by 12% when the selling price is reduced to $16. Assume that the implied cost behavir patterns are correct. 3. The company desires to seek an order for 6,800 units fro a foreign customer. The variable selling expenses for the order will be 30% less than usual, but the fixed csts for obtaining the order will be $8,160. Domestic sales will not be affected. Compute the minimum break-even price per unit to be considered. 4. The company has an inventory of 7,000 units of this item left over from last year’s model. These must be sold through regular channels at reduced prices. The inventory will be less valueless unless sold this way. What unit cost is relevant for establishing the minimum selling price of these 7,000 units?

The Dapp company had the following financial results for two years in recent Revenues Year2 $4463 Year1 $4510 Operating expenses Year2 $3569 Year1 $3615 Cash income taxes Year2 $292, Year1 $255 Average invested capital Year2 $2854 Year1 $2689. 1. Suppose Dapp’s cost of capital is 11.5%. Compute the company’s EVA ( Economic Value Added) Assume definitions of after tax operating income and invested capital as reported in annual reports without adjustments advocated by other 2. Discuss the change in EVA between year 1 and 2

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