Question

Question 7 At Runner, the engraving department is a bottleneck, and the company is considering hiring an extra worker, whose salary will be $69,873 per year, to mitigate the problem. With the extra worker, the company will be able to produce and sell 7,700 more units per year. The selling price per unit is $15.00. Cost per unit currently is $7.81 as follows: Direct material $2.77 Direct labor 0.90 Variable overhead 0.24 Fixed overhead (primarily depreciation of equipment) 3.90 Total $7.81 Calculate the annual financial impact of hiring the extra worker. The annual net profit will by $ by hiring the extra worker.

Answer 1

Answer and Explanation:

Given:

Cost of extra worker salary = $69873

Units with extra worker =7700 units per year

Selling price = $15.00

Cost per unit = $7.81

(Direct material = $2.77

Direct labour = $0.90

Variable overhead = $0.24

Fixed overhead = $3.90)

Calculate net income:

Sale revenue($15*7700units) =$115500

Deduct expenses:

Direct material ($2.77*7700units) =$21329

Direct labour($0.90*7700 units)= $6930

Variable overhead(0.24*7700 units) =$1848

Fixed overhead allocated(3.90*7700 units) = $30030

Net profit = $55363

Therefore profit increases with additional worker