Glisan Corporation's relevant range of activity is 4,000 units to 8,000 units. When it produces and sells 6,000 units, its average costs per unit are as follows:

Question

Glisan Corporation's relevant range of activity is 4,000 units to 8,000 units. When it produces and sells 6,000 units, its average costs per unit are as follows:

average cost per unit

Direct materials 5.75

direct labor 3.00

variable manufacturing overhead 1.60

fixed manufacturing overhead 4.50

fixed selling expense 0.75

fixed administrative expense 0.60

sales commissions 1.50

Gilsan currently sells at a price of $24 per unit

SHOW WORK

Part A. What is net operating income assuming Glisan sells 6400 units?

Part B. Compute the gross margin assuming Glisan sells 6600 units.

Part C. Assume that Glisan can only increase sales to 6400 units by decreasing the current price of $24 by 2.6%. If Glisan does not decrease the price, then demand will stay at 6,000 units. How much better or worse off is Glisan if it decreases the price? If better off, enter your answer as a positive number, if worst off enter your answer as a negative number. Round to the nearest dollar.

Answer 1

Hello, Heva,

I concluded, after asking you in a comment, that, in fact, I can calculate the fixed costs based on the 6000 unit figures. The fixed costs will remain the same for other levels of production. There is too much to explain in detail, before running out of space. Even now I'm having to shorten things to fit and cannot even enter a reduced image of the table. Sorry - I'll try adding it in a second answer window.

The fixed costs remain the same for all levels of production and the variable costs are changed to reflect the different production cases. You can see from the results at the bottom, that Glisan would be slightly better off if they decreased the price by 2.6%. [And it would make their customers happier.]

Bob