Farmingdale Industries Ltd. has been approached by a customer who wishes to purchase 48,000 units of its product at $57 per unit. The customer requires delivery within one month. The company has capacity to produce 352,000 units per month and has 7,000 units currently in stock. Sales to Farmingdale's regular customers are forecast at 328,000 units for the upcoming month. The sales manager has indicated that if the company accepts the special order, it would be able to recover 45% of the sales lost to regular customers. Units sold through normal distribution channels have a selling price of $77 per unit, and the gross margin earned on each unit is $26. Selling and administration costs total $20 per unit. A further analysis determined that the variable manufacturing costs of the regular units are $34 per unit with variable selling costs of $14 per unit. Because of the nature of the special order, the selling costs will be reduced to 10$ per unit, of which is all variable costs. Required 1 2. 3. Should Farmingdale accept the offer from the customer? What is the minimum price Farmingdale should charge for this order? What factors should be considered in pricing special orders?

Farmingdale Industries Ltd. has been approached by a customer who wishes to purchase 48,000 units of its product at $57 per unit. The customer requires delivery within one month. The company has capacity to produce 352,000 units per month and has 7,000 units currently in stock. Sales to Farmingdale's regular customers are forecast at 328,000 units for the upcoming month. The sales manager has indicated that if the company accepts the special order, it would be able to recover 45% of the sales lost to regular customers. Units sold through normal distribution channels have a selling price of $77 per unit, and the gross margin earned on each unit is $26. Selling and administration costs total $20 per unit. A further analysis determined that the variable manufacturing costs of the regular units are $34 per unit with variable selling costs of $14 per unit. Because of the nature of the special order, the selling costs will be reduced to 10$ per unit, of which is all variable costs. Required 1 2. 3. Should Farmingdale accept the offer from the customer? What is the minimum price Farmingdale should charge for this order? What factors should be considered in pricing special orders?

Name: Farmingdale Industries Ltd. has been approached by a customer who wis
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Description: Farmingdale Industries Ltd. has been approached by a customer who wishes to purchase 48,000 units ofits product at $57 per unit. The customer requires delivery within one month. The company has capacityto produce 352,000 units per month and has 7,00

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

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

Farmingdale Industries Ltd. has been approached by a customer who wishes to purchase 48,000 units of
its product at $57 per unit. The customer requires delivery within one month. The company has capacity
to produce 352,000 units per month and has 7,000 units currently in stock. Sales to Farmingdale's regular
customers are forecast at 328,000 units for the upcoming month. The sales manager has indicated that if
the company accepts the special order, it would be able to recover 45% of the sales lost to regular
customers. Units sold through normal distribution channels have a selling price of $77 per unit, and the
gross margin earned on each unit is $26. Selling and administration costs total $20 per unit. A further
analysis determined that the variable manufacturing costs of the regular units are $34 per unit with
variable selling costs of $14 per unit. Because of the nature of the special order, the selling costs will be
reduced to 10$ per unit, of which is all variable costs.
Required
1. Should Farmingdale accept the offer from the customer?
2.
What is the minimum price Farmingdale
should charge for this order?
3.
What factors should be considered in pricing special orders?
Requirement 1. Should Farmingdale accept the offer from the customer?
First, determine the opportunity cost from lost sales and the amount gained from the special order.
The opportunity cost from the lost sales is?.
The amount gained from the special order is ?.
Please show the full solutions to this problem it would be greatly appreciated. Thanks so much and have a
nice day!

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