A Company Is Looking into Two Alternative Methods of Producing

question 137

Essay

A company is looking into two alternative methods of producing its product. The following information about the two alternatives is available. If the company's expected sales volume is 35,000 units, which alternative should be selected?Prepare forecasted contribution margin income statements and compute the degree of operating leverage to assess the alternatives.

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Definitions:

FICA Taxes

Federal taxes in the United States that fund Social Security and Medicare, required to be withheld from employees' paychecks and also paid by employers.

Allowances

Amounts set aside for adjustments or reductions in the value of accounts or inventories, often for potential bad debts or depreciation.

Withheld

Refers to amounts deducted from an employee's wages or payments, often pertaining to taxes or other legal obligations, not immediately paid to the employee.

Interstate Commerce

A test that is applied to determine whether an employer must follow the rules of the Fair Labor Standards Act. If an employer communicates or does business with another business in some other state, it is usually considered to be involved in interstate commerce.