Grant Industries, a manufacturer of electronic parts, has recently received an invitation to bid on a special order for 20,500 units of one of its most popular products. Grant currently manufactures 41,000 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 $13 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 Manufacturing costs: 41,000 61,500 Direct materials $ 123,000 $ 184,500 Direct labor 164,000 246,000 Factory overhead 328,000 430,500 Total manufacturing costs $ 615,000 $ 861,000 Unit cost $15 $ 14 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 5,700 units to its regular customers? Assume the preceding facts plus a normal selling price of $28 per unit.
Grant Industries, a manufacturer of electronic parts, has recently received an invitation to bid on a special order for 20,500 units of one of its most popular products. Grant currently manufactures 41,000 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 $13 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 Manufacturing costs: 41,000 61,500 Direct materials $ 123,000 $ 184,500 Direct labor 164,000 246,000 Factory overhead 328,000 430,500 Total manufacturing costs $ 615,000 $ 861,000 Unit cost $15 $ 14 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 5,700 units to its regular customers? Assume the preceding facts plus a normal selling price of $28 per unit.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Grant Industries, a manufacturer of electronic parts, has recently received an invitation to bid on a special order for 20,500
units of one of its most popular products. Grant currently manufactures 41,000 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 $13 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
Manufacturing costs:
Direct materials
41,000
61,500
$ 123,000 $ 184,500
164,000
246,000
328,000
430,500
Direct labor
Factory overhead
Total manufacturing costs $ 615,000 $861,000
Unit cost
$15
$ 14
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 5,700 units to its
regular customers? Assume the preceding facts plus a normal selling price of $28 per unit.
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