$ 39 15 Direct materials Direct labor 6. Variable manufacturing overhead Variable selling expenses 20 Fixed manufacturing overhead Total cost $ 83 * $2,050,000 Total fixed manufacturing overhead / 102,500 Pairs of sunglasses
$ 39 15 Direct materials Direct labor 6. Variable manufacturing overhead Variable selling expenses 20 Fixed manufacturing overhead Total cost $ 83 * $2,050,000 Total fixed manufacturing overhead / 102,500 Pairs of sunglasses
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Making special pricing decisions
Newtown Sunglasses sell for about $154 per pair. Suppose that the company incurs the following average costs per pair:
Newtown has enough idle capacity to accept a one-time-only special order from Water Shades for 17,000 pairs of sunglasses at $80 per pair. Newtown will not incur any variable selling expenses for the order.
Requirements
- How would accepting the order affect Newtown’s operating income? In addition to the special order’s effect on profits, what other (longer-term qualitative) factors should Newtown’s managers consider in deciding whether to accept the order?
- Newtown’s marketing manager, Peter Kyler, argues against accepting the special order because the offer price of $80 is less than Newtown’s $83 cost to make the sunglasses. Kyler asks you, as one of Newtown’s staff accountants, to explain whether his analysis is correct. What would you say?
![$ 39
15
Direct materials
Direct labor
6.
Variable manufacturing overhead
Variable selling expenses
20
Fixed manufacturing overhead
Total cost
$ 83
* $2,050,000 Total fixed manufacturing overhead / 102,500 Pairs of sunglasses](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ffa5b9b85-4a95-4114-b5b5-717384e8c35b%2F8494418b-2d5f-4d6b-910c-8dc91c72556b%2Frrhonk.png&w=3840&q=75)
Transcribed Image Text:$ 39
15
Direct materials
Direct labor
6.
Variable manufacturing overhead
Variable selling expenses
20
Fixed manufacturing overhead
Total cost
$ 83
* $2,050,000 Total fixed manufacturing overhead / 102,500 Pairs of sunglasses
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