Assume a company manufactures many products, one of which normally sells for $48 per unit. The company's accounting system reports the following unit product cost for this product: Direct materials Direct labor Manufacturing overhead Total cost Per Unit $18 12 10 $ 40 The company estimates that $3 of its manufacturing overhead varies with respect to the number of units produced. The remainder of its overhead is fixed and unaffected by the volume of units produced within the relevant range. A customer has approached the company with an offer to buy 300 units of a customized version of the product mentioned above for $39. The company can fulfill this order using existing manufacturing capacity. To accommodate the customer's desired product design, the company would incur additional direct materials cost per unit of $3. It would also have to buy a special tool for $470 that has no other use or resale value after the special order is completed. Assuming that accepting this order will not have any effect on sales to other customers, what is the financial advantage (disadvantage) of accepting the special order?
Assume a company manufactures many products, one of which normally sells for $48 per unit. The company's accounting system reports the following unit product cost for this product: Direct materials Direct labor Manufacturing overhead Total cost Per Unit $18 12 10 $ 40 The company estimates that $3 of its manufacturing overhead varies with respect to the number of units produced. The remainder of its overhead is fixed and unaffected by the volume of units produced within the relevant range. A customer has approached the company with an offer to buy 300 units of a customized version of the product mentioned above for $39. The company can fulfill this order using existing manufacturing capacity. To accommodate the customer's desired product design, the company would incur additional direct materials cost per unit of $3. It would also have to buy a special tool for $470 that has no other use or resale value after the special order is completed. Assuming that accepting this order will not have any effect on sales to other customers, what is the financial advantage (disadvantage) of accepting the special order?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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Transcribed Image Text:Assume a company manufactures many products, one of which normally sells for $48 per unit. The company's accounting system reports the following
unit product cost for this product:
Direct materials
Direct labor
Manufacturing overhead
Total cost
The company estimates that $3 of its manufacturing overhead varies with respect to the number of units produced. The remainder of its overhead is fixed
and unaffected by the volume of units produced within the relevant range.
A customer has approached the company with an offer to buy 300 units of a customized version of the product mentioned above for $39. The company
can fulfill this order using existing manufacturing capacity.
To accommodate the customer's desired product design, the company would incur additional direct materials cost per unit of $3.
It would also have to buy a special tool for $470 that has no other use or resale value after the special order is completed.
Assuming that accepting this order will not have any effect on sales to other customers, what is the financial advantage (disadvantage) of accepting the
special order?
Multiple Choice
O
$(300)
$900
Per Unit
$18
12
10
$ 40
$430
$(1,670)
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