4. Poppy Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 30,000 Rets per year; however, due to a recession, Poppy Company is currently selling only 25,000 Rets. Costs associated 25,000 Rets are given below: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Unit $15.0 8.0 3.0 10.8 Total $375,000 200,000 75,000 270,000 The Rets normally sell for $50 each. Total fixed manufacturing overhead is constant at $270,000. A large retail chain has offered to purchase 5,000 Rets at $42 per unit. Moreover, the customer requests a small change to be made to Rets, which will increase $1 per unit for the Direct labor cost. Since this product specification is somewhat different from Poppy's normal product, to ensure the product quality. Poppy needs to lease a special inspection machine during the production process. The lease cost of the machine is $37,000, and the machine will not be used for any other purposes. Required: If Poppy accepts the special order, by how much will the company's Net Income increase or decrease? Should Poppy accept or reject the special order? (Accept. NI will increase by $38,000)
4. Poppy Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 30,000 Rets per year; however, due to a recession, Poppy Company is currently selling only 25,000 Rets. Costs associated 25,000 Rets are given below: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Unit $15.0 8.0 3.0 10.8 Total $375,000 200,000 75,000 270,000 The Rets normally sell for $50 each. Total fixed manufacturing overhead is constant at $270,000. A large retail chain has offered to purchase 5,000 Rets at $42 per unit. Moreover, the customer requests a small change to be made to Rets, which will increase $1 per unit for the Direct labor cost. Since this product specification is somewhat different from Poppy's normal product, to ensure the product quality. Poppy needs to lease a special inspection machine during the production process. The lease cost of the machine is $37,000, and the machine will not be used for any other purposes. Required: If Poppy accepts the special order, by how much will the company's Net Income increase or decrease? Should Poppy accept or reject the special order? (Accept. NI will increase by $38,000)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:4. Poppy Company manufactures and sells a single product called a Ret. Operating at capacity, the
company can produce and sell 30,000 Rets per year; however, due to a recession, Poppy
Company is currently selling only 25.000 Rets. Costs associated 25,000 Rets are given below:
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
Unit
$15.0
8.0
3.0
10.8
Total
$375,000
200,000
75,000
270,000
The Rets normally sell for $50 each. Total fixed manufacturing overhead is constant at $270,000. A
large retail chain has offered to purchase 5,000 Rets at $42 per unit. Moreover, the customer requests
a small change to be made to Rets, which will increase $1 per unit for the Direct labor cost. Since this
product specification is somewhat different from Poppy's normal product, to ensure the product quality.
Poppy needs to lease a special inspection machine during the production process. The lease cost of
the machine is $37,000, and the machine will not be used for any other purposes.
Required:
If Poppy accepts the special order, by how much will the company's Net Income increase or
decrease? Should Poppy accept or reject the special order? (Accept. NI will increase by $38,000)
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