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 $15 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 Direct labor Factory overhead 41,000 61,500 $ 164,000 205,000 328,000 $ 246,000 307,500 430,500 Total manufacturing costs $ 697,000 $ 984,000 Unit cost $ 17 $ 16 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 5,900 units to its regular customers? Assume the preceding facts plus a normal selling price of $32 per unit. Complete this question by entering your answers in the tabs below. Required 2 Required 4 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? Relevant cost per unit Bid price per unit should be any price above Change in short-term operating income
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 $15 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 Direct labor Factory overhead 41,000 61,500 $ 164,000 205,000 328,000 $ 246,000 307,500 430,500 Total manufacturing costs $ 697,000 $ 984,000 Unit cost $ 17 $ 16 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 5,900 units to its regular customers? Assume the preceding facts plus a normal selling price of $32 per unit. Complete this question by entering your answers in the tabs below. Required 2 Required 4 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? Relevant cost per unit Bid price per unit should be any price above Change in short-term operating income
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
$15 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
Direct labor
Factory overhead
41,000
61,500
$ 164,000
205,000
328,000
$ 246,000
307,500
430,500
$ 984,000
Total manufacturing costs
$ 697,000
$ 17
Unit cost
$ 16
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 5,900 units to its regular
customers? Assume the preceding facts plus a normal selling price of $32 per unit.
Complete this question by entering your answers in the tabs below.
Required 2
Required 4
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?
Relevant cost per unit
Bid price per unit should be any price above
Change in short-term operating income
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