Direct materials Direct labour Manufacturing overhead Unit product cost $124.00 76.00 24.00 $224.00
Direct materials Direct labour Manufacturing overhead Unit product cost $124.00 76.00 24.00 $224.00
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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Question
Transcribed Image Text:8
Sato Awards has had a request for a special order of 10 silver-plated trophies from the provincial tennis association. The normal selling
price of such a trophy is $336.00 and its unit product cost is $224.00, as shown below:
Direct materials
Direct labour
Manufacturing overhead
Unit product cost
$124.00
76.00
24.00
$224.00
Most of the manufacturing overhead is fixed and unaffected by variations in how many trophies are produced in any given period.
However, $4 of the overhead is variable, depending on the number of trophies produced. The customer would like a special logo
applied to the trophies requiring additional materials costing $3 per trophy and would also require acquisition of a special tool costing
$420 that would have no other use once the special order was completed. This order would have no effect on the company's regular
sales, and the order could be filled using the company's existing capacity without affecting any other order.
Required:
a. What effect would accepting this order have on the company's operating income if a special price of $291.00 is offered per trophy
for this order? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Net operating income
Transcribed Image Text:b. Should the special order be accepted at this price?
Yes
2
No
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