**Special Order Decision Analysis: SixthZ Treehouses** SixthZ currently produces and sells 1,200 treehouses per year and sells them at $1,200 per treehouse. SixthZ has the capacity to produce 1,400 treehouses. SixthZ has received a special order from the families in Davis's Village Homes community. They would like to buy 135 treehouses at a price of $800 per treehouse. The product unit cost for the treehouses is shown below: **Product Unit Cost Breakdown** | Cost Component | Cost | |---------------------|-------| | Direct Materials | $500 | | Direct Labor | $300 | | Variable Overhead | $40 | | Fixed Overhead | $100 | **Additional Information:** - SixthZ incurs no variable selling and administrative expenses. **Decision Question:** - Should SixthZ accept the special order? **Options:** 1. No, because accepting the order would result in a $113,400 decrease in operating income. 2. No, because accepting the order would result in an $18,900 decrease in operating income. 3. Yes, because accepting the order would result in a $54,000 increase in operating income. 4. No, because accepting the order would result in a $5,400 decrease in operating income. --- In the context above, the costs are mentioned categorically (Direct Materials, Direct Labor, Variable Overhead, and Fixed Overhead), providing a clear understanding of the expense structure associated with producing one treehouse. Given the capacity to produce additional units and the special price offered for the extra units, the decision needs to consider incremental costs versus incremental revenue. The key focus should be on direct costs and variable overheads since fixed overheads are typically spread over the total production and may not change with additional units produced within existing capacity. The options listed guide towards the financial impact of each decision.
**Special Order Decision Analysis: SixthZ Treehouses** SixthZ currently produces and sells 1,200 treehouses per year and sells them at $1,200 per treehouse. SixthZ has the capacity to produce 1,400 treehouses. SixthZ has received a special order from the families in Davis's Village Homes community. They would like to buy 135 treehouses at a price of $800 per treehouse. The product unit cost for the treehouses is shown below: **Product Unit Cost Breakdown** | Cost Component | Cost | |---------------------|-------| | Direct Materials | $500 | | Direct Labor | $300 | | Variable Overhead | $40 | | Fixed Overhead | $100 | **Additional Information:** - SixthZ incurs no variable selling and administrative expenses. **Decision Question:** - Should SixthZ accept the special order? **Options:** 1. No, because accepting the order would result in a $113,400 decrease in operating income. 2. No, because accepting the order would result in an $18,900 decrease in operating income. 3. Yes, because accepting the order would result in a $54,000 increase in operating income. 4. No, because accepting the order would result in a $5,400 decrease in operating income. --- In the context above, the costs are mentioned categorically (Direct Materials, Direct Labor, Variable Overhead, and Fixed Overhead), providing a clear understanding of the expense structure associated with producing one treehouse. Given the capacity to produce additional units and the special price offered for the extra units, the decision needs to consider incremental costs versus incremental revenue. The key focus should be on direct costs and variable overheads since fixed overheads are typically spread over the total production and may not change with additional units produced within existing capacity. The options listed guide towards the financial impact of each decision.
Chapter1: Financial Statements And Business Decisions
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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.
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Transcribed Image Text:**Special Order Decision Analysis: SixthZ Treehouses**
SixthZ currently produces and sells 1,200 treehouses per year and sells them at $1,200 per treehouse. SixthZ has the capacity to produce 1,400 treehouses. SixthZ has received a special order from the families in Davis's Village Homes community. They would like to buy 135 treehouses at a price of $800 per treehouse. The product unit cost for the treehouses is shown below:
**Product Unit Cost Breakdown**
| Cost Component | Cost |
|---------------------|-------|
| Direct Materials | $500 |
| Direct Labor | $300 |
| Variable Overhead | $40 |
| Fixed Overhead | $100 |
**Additional Information:**
- SixthZ incurs no variable selling and administrative expenses.
**Decision Question:**
- Should SixthZ accept the special order?
**Options:**
1. No, because accepting the order would result in a $113,400 decrease in operating income.
2. No, because accepting the order would result in an $18,900 decrease in operating income.
3. Yes, because accepting the order would result in a $54,000 increase in operating income.
4. No, because accepting the order would result in a $5,400 decrease in operating income.
---
In the context above, the costs are mentioned categorically (Direct Materials, Direct Labor, Variable Overhead, and Fixed Overhead), providing a clear understanding of the expense structure associated with producing one treehouse.
Given the capacity to produce additional units and the special price offered for the extra units, the decision needs to consider incremental costs versus incremental revenue. The key focus should be on direct costs and variable overheads since fixed overheads are typically spread over the total production and may not change with additional units produced within existing capacity. The options listed guide towards the financial impact of each decision.
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