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Chapter 4 Problems - Solutions

Chapter 4 Problems - Solutions - Chapter 4 Problems Use the...

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Chapter 4 Problems Use the following information to answer the next three questions. Harcourt Marketing (HM) has the capacity to produce 10,000 fax machines per year. HM currently produces and sells 7,000 units per year. The fax machines normally sell for \$100 each. Modem Products has offered to buy 2,000 fax machines from HM for \$60 each. Unit-level costs associated with manufacturing the fax machines are \$15 each for direct labor and \$40 each for direct materials. Product- level and facility-sustaining costs are \$50,000 and \$65,000, respectively. 1. What is HM's current profit (net income)? a. \$115,000 Revenue 7000 * \$100= \$700,000 b. \$120,000 Unit-level 7000 * \$15 = (105,000) c. \$200,000 Unit-level 7000 * \$40 = (280,000) d. \$315,000 Product-level ( 50,000) Facility-level ( 65,000) Net Income \$200,000 2. How much would profit increase (decrease) if HM accepted this special order? 3. Should HM accept the special offer? a. yes, unequivocally b. no c. maybe d. no, because GAAP requires all costs to be included in the product

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