Problem 2 Friendly Company produces a single product. Recently, the company received a special order from a large national public corporation that wants to purchase 900 units of the company's product at $110 each. Friendly Company's usual individual orders are no more than 25 units. So, this proposed 900- unit order is much larger than their usual order. The order will not affect the selling price to regular customers. Friendly Company's income statement for the past month is as follows: Sales (1,200 units) Cost of goods sold Gross profit Selling and administrative expenses $144,000 - 108,000 $ 36,000 10,000 $ 26,000 Net income There was no beginning or ending inventories of work-in-process or finished goods. For the month presented, the company's detailed manufacturing costs were as follows: Direct materials ($20/unit) Direct labor ($32/unit) Variable manufacturing overhead ($18/unit) Fixed manufacturing overhead ($20/unit) $24,000 38,400 21,600 24,000 $108,000 $90 Total Average cost per unit Selling and administrative expenses are all fixed. Required: a. Assuming the company has sufficient productive capacity to supply the special order, prepare an analysis of the relevant costs and revenues associated with the special order. Please show your work. b. Given the analysis above, should the company accept or reject the special order? Please explain your answer, briefly. c. Suggest 3 qualitative, i.e. non-financial, issues the company should consider when deciding on providing this special order.
Problem 2 Friendly Company produces a single product. Recently, the company received a special order from a large national public corporation that wants to purchase 900 units of the company's product at $110 each. Friendly Company's usual individual orders are no more than 25 units. So, this proposed 900- unit order is much larger than their usual order. The order will not affect the selling price to regular customers. Friendly Company's income statement for the past month is as follows: Sales (1,200 units) Cost of goods sold Gross profit Selling and administrative expenses $144,000 - 108,000 $ 36,000 10,000 $ 26,000 Net income There was no beginning or ending inventories of work-in-process or finished goods. For the month presented, the company's detailed manufacturing costs were as follows: Direct materials ($20/unit) Direct labor ($32/unit) Variable manufacturing overhead ($18/unit) Fixed manufacturing overhead ($20/unit) $24,000 38,400 21,600 24,000 $108,000 $90 Total Average cost per unit Selling and administrative expenses are all fixed. Required: a. Assuming the company has sufficient productive capacity to supply the special order, prepare an analysis of the relevant costs and revenues associated with the special order. Please show your work. b. Given the analysis above, should the company accept or reject the special order? Please explain your answer, briefly. c. Suggest 3 qualitative, i.e. non-financial, issues the company should consider when deciding on providing this special order.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:Problem 2
Friendly Company produces a single product. Recently, the company received a special order from a
large national public corporation that wants to purchase 900 units of the company's product at $110
each. Friendly Company's usual individual orders are no more than 25 units. So, this proposed 900-
unit order is much larger than their usual order.
The order will not affect the selling price to regular customers.
Friendly Company's income statement for the past month is as follows:
Sales (1,200 units)
Cost of goods sold
Gross profit
Selling and administrative expenses
$144,000
- 108,000
$ 36,000
10,000
$ 26,000
Net income
There was no beginning or ending inventories of work-in-process or finished goods. For the month
presented, the company's detailed manufacturing costs were as follows:
Direct materials ($20/unit)
Direct labor ($32/unit)
Variable manufacturing overhead ($18/unit)
Fixed manufacturing overhead ($20/unit)
$24,000
38,400
21,600
24,000
$108,000
$90
Total
Average cost per unit
Selling and administrative expenses are all fixed.
Required:
a. Assuming the company has sufficient productive capacity to supply the special order, prepare an
analysis of the relevant costs and revenues associated with the special order. Please show your
work.
b. Given the analysis above, should the company accept or reject the special order? Please explain
your answer, briefly.
c. Suggest 3 qualitative, i.e. non-financial, issues the company should consider when deciding on
providing this special order.
d. Assuming the company does not have excess capacity to produce the special order and will have
to shift production from their normal customers to meet the order, determine the net financial
advantage or disadvantage (profit increase or decrease) of accepting the order. Please show your
work.
Under the assumptions given in part d. and based on your analysis, do you recommend accepting
or rejecting the special order? Please explain your answer, briefly.
е.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 1 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education