Grant Industries, a manufacturer of electronic parts, has recently received an invitation to bid on a special order for 20,000 units of one of its most popular products. Grant currently manufactures 40,000 units of this product in its Loveland, Ohio, plant. The plant is operating at 50% capacity. There will be no marketing costs on the special order. The sales manager of Grant wants to set the bid at $9 per unit because she is sure that Grant will get the business at that price. Others on the executive committee of the firm object, saying that Grant would lose money on the special order at that price. Units 40,000 Manufacturing costs: Direct materials Direct labor Factory overhead 240,000 Total manufacturing costs $ 440,000 Unit cost $11 $ 80,000 120,000 60,000 $ 120,000 180,000 300,000 $ 600,000 $ 10 Required: 2. What is the relevant cost per unit? What do you think the minimum short-term bid price per unit should be? What would be the impact on short-term operating income if the order is accepted at the price recommended by the sales manager? 4. What would the total opportunity cost be if by accepting the special order the company lost sales of 5,000 units to its regular customers? Assume the preceding facts plus a normal selling price of $20 per unit.
Grant Industries, a manufacturer of electronic parts, has recently received an invitation to bid on a special order for 20,000 units of one of its most popular products. Grant currently manufactures 40,000 units of this product in its Loveland, Ohio, plant. The plant is operating at 50% capacity. There will be no marketing costs on the special order. The sales manager of Grant wants to set the bid at $9 per unit because she is sure that Grant will get the business at that price. Others on the executive committee of the firm object, saying that Grant would lose money on the special order at that price. Units 40,000 Manufacturing costs: Direct materials Direct labor Factory overhead 240,000 Total manufacturing costs $ 440,000 Unit cost $11 $ 80,000 120,000 60,000 $ 120,000 180,000 300,000 $ 600,000 $ 10 Required: 2. What is the relevant cost per unit? What do you think the minimum short-term bid price per unit should be? What would be the impact on short-term operating income if the order is accepted at the price recommended by the sales manager? 4. What would the total opportunity cost be if by accepting the special order the company lost sales of 5,000 units to its regular customers? Assume the preceding facts plus a normal selling price of $20 per unit.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Transcribed Image Text:Grant Industries, a manufacturer of electronic parts, has recently received an invitation to bid on a special order for 20,000 units of one of its most popular
products. Grant currently manufactures 40,000 units of this product in its Loveland, Ohio, plant. The plant is operating at 50% capacity. There will be no
marketing costs on the special order. The sales manager of Grant wants to set the bid at $9 per unit because she is sure that Grant will get the business at
that price. Others on the executive committee of the firm object, saying that Grant would lose money on the special order at that price.
Units
40,000
Manufacturing costs:
Direct materials
$ 80,000
Direct labor
Factory overhead 240,000
Total manufacturing costs $ 440,000
$ 11
Unit cost
60,000
$ 120,000
120,000 180,000
300,000
$ 600,000
$ 10
Required:
2. What is the relevant cost per unit? What do you think the minimum short-term bid price per unit should be? What would be the impact on short-term
operating income if the order is accepted at the price recommended by the sales manager?
4. What would the total opportunity cost be if by accepting the special order the company lost sales of 5,000 units to its regular customers? Assume the
preceding facts plus a normal selling price of $20 per unit.
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