Required1. Should Norton accept the invitation to bid? Explain. What would be the impact on shorttermoperating income if the order is accepted at the price recommended by the sales manager?2. Suppose that Norton's distribution genter at the warehouse is operating at full capacity and wouldneed to add capacity (leasing additional warehouse) costing S6,000 for every 10,000 units to bepacked and shipped. What do you think the minimum bid price for the special order? Explain.3. Based on the requirement no. 2, explain the relevant factors Norton should consider in decidingwhether to bid in the special order. (at least two factor) Norton Industries, a manufacturer of electronic parts, has recently received an invitation to bid on aspecial order for 20,000 units of one of its most popular products. Norton currently manufactures40,000 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 salesmanager of Norton wants to set the bid at $7 per unit because she is sure that Norton will get thebusiness at that price. Others on the executive committee of the firm object, saying that Norton wouldlose money on the special order at that price.Units40,000Manufacturing CostsDirect Materials$90,000Direct Labor100,000Factory OverheadTotal Manufacturing Cost260,000*$450,000Unit Cost$11.25*50% factory overhead is variable

When an entity working under capacity considers a special offer, it needs to consider the relevant…

Answered: Id Norton accept the invi g income if…

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Accounting

Id Norton accept the invi g income if the order is ose that Norton's distribr

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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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 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 60,000 Manufacturing costs: Direct materials $ 80,000 $ 120,000 Direct labor 120,000 180,000 Factory overhead 240,000 300,000 Total manufacturing costs $ 440,000 $ 600,000 Unit cost $ 11 $ 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…
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