ART manufactures and sells underwater markers. Its contribution margin income statement follows. Contribution Margin Income Statement For Year Ended December 31 Per Unit Annual Total Sales (420,000 units) $ 7.00 $ 2,940,000 Variable costs Direct materials 1.46 613,200 Direct labor 0.44 184,800 Variable overhead 0.70 294,000 Contribution margin 4.40 1,848,000 Fixed costs Fixed overhead 0.30 126,000 Fixed general and administrative 0.25 105,000 Income $ 3.85 $ 1,617,000 A potential customer offers to buy 52,000 units for $3.70 each. These sales would not affect the company’s sales through its normal channels. Details about the special offer follow. Direct materials cost per unit and variable overhead cost per unit would not change. Direct labor cost per unit would be $0.62 because the offer would require overtime pay. Accepting the offer would require incremental fixed general and administrative costs of $5,200. Accepting the offer would require no incremental fixed overhead costs. Required: 1. Compute income from the special offer. 2. Should the company accept or reject the special offer?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
JART manufactures and sells underwater markers. Its contribution margin income statement follows.
| Contribution Margin Income Statement | ||
| For Year Ended December 31 | Per Unit | Annual Total |
|---|---|---|
| Sales (420,000 units) | $ 7.00 | $ 2,940,000 |
| Variable costs | ||
| Direct materials | 1.46 | 613,200 |
| Direct labor | 0.44 | 184,800 |
| Variable |
0.70 | 294,000 |
| Contribution margin | 4.40 | 1,848,000 |
| Fixed costs | ||
| Fixed overhead | 0.30 | 126,000 |
| Fixed general and administrative | 0.25 | 105,000 |
| Income | $ 3.85 | $ 1,617,000 |
A potential customer offers to buy 52,000 units for $3.70 each. These sales would not affect the company’s sales through its normal channels. Details about the special offer follow.
- Direct materials cost per unit and variable overhead cost per unit would not change.
- Direct labor cost per unit would be $0.62 because the offer would require overtime pay.
- Accepting the offer would require incremental fixed general and administrative costs of $5,200.
- Accepting the offer would require no incremental fixed overhead costs.
Required:
1. Compute income from the special offer.
2. Should the company accept or reject the special offer?
![### Special Offer Analysis
This table is designed to analyze the financial impact of a special offer.
#### Columns:
- **Per Unit**: Indicates the financial figures for each individual unit.
- **Total**: Represents the overall financial impact.
#### Rows:
1. **[Blank Rows]**: Space available for specific items or costs related to the special offer.
2. **Contribution Margin**: The difference between sales revenue and variable costs. It indicates how much is available to cover fixed costs and profit.
3. **Fixed Overhead**: Fixed costs that do not change with the level of production. These might include rent, utilities, etc.
4. **Fixed General and Administrative**: Fixed costs related to company operations, such as salaries of permanent staff, office supplies, etc.
5. **Income (Loss)**: The net result after subtracting fixed costs from the contribution margin. It reflects the profitability or loss from the special offer.
### Explanation:
This table format is useful for evaluating whether a special offer will be profitable after accounting for all relevant costs. It helps in decision-making by breaking down expenses and revenue associated with specific pricing strategies.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F546860fe-98c5-4cbb-83c9-6bb3ac138cc4%2Ff283e9f0-8355-47fc-a535-b50ca8da31a2%2Fld8224u_processed.png&w=3840&q=75)
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