Question 3 2 points Buxton Company produces several types of

Question 3 (2 points) Buxton Company produces several types of industrial machines. One of their products, Robble the Welding Robot, shews disappointing resuts. Information on it is as follows Sales $1,000,000 Variable selling costs Contribution margin Fixed manufacturing overhead Fixed administrative overhead Operating income If Rebbe is discontinued, 30% of the-ed manufacturing overhead can be e minated. The fed administrative 750,000 100.099 $150,000 190,000 0.900 79-22 overhead represert? general wporate ovrhead alocated to roasts. In addeon, sore Should Buxton eliminate customers who previously bought Robble will switch to Buxton\'s other products, adding $60,000 ef contibution to these products O A) No. Profits would decrease by $33,00o. O B) Yes. Profits would increase by $117,000 O c) No. Profts would decrease by $90,000, 0 D) Yes. Profits would increase by$130,000. Save Question 4 (2 points)

Solution

Answers

Working

Results, if not eliminated

Results, if eliminated

Increase (Decrease) in Net Income

Contribution margin

$                           150,000.00

$               60,000.00

$              (90,000.00)

Fixed manufacturing overhead

$                           190,000.00

$             133,000.00 [190,000 x 70% will exist]

$              (57,000.00)

Fixed administrative overhead

$                             30,000.00

$               30,000.00 [100% allocated will exist]

$                                -  

Operating Income

$                           (70,000.00)

$          (103,000.00)

$              (33,000.00)

The above working shows that Net Income would decrease by $ 33,000 if it is eliminated.

Hence, The correct answer is Option ‘A’: No. Profit would decrease by $ 33,000

The company can accept offer without it’s normal sale being affected. The Offer shall be accepted if Offer price is MORE than RELEVANT cost of producing.

Relevant costs include:

---All variable costs to be incurred.
---Contribution margin lost, if any.
---Any avoidable Fixed Cost.

Working

A

Material

$                                   600.00

B

Labor

$                                   120.00

C

Variable Overhead

$                                     90.00

D=A+B+C

Total Variable (Relevant Cost)

$                                   810.00

E

Sale price of Offer

$                                   900.00

F=E-D

Contribution margin per battery

$                                     90.00

Hence, The Correct answer is Option ‘D’: YES. Profit would increase by $ 90 per unit for each battery sold.

	Results, if not eliminated	Results, if eliminated	Increase (Decrease) in Net Income
Contribution margin	$                           150,000.00	$               60,000.00	$              (90,000.00)
Fixed manufacturing overhead	$                           190,000.00	$             133,000.00 [190,000 x 70% will exist]	$              (57,000.00)
Fixed administrative overhead	$                             30,000.00	$               30,000.00 [100% allocated will exist]	$                                -
Operating Income	$                           (70,000.00)	$          (103,000.00)	$              (33,000.00)