Jupiter Corporation manufactures skateboards. Several weeks ago, the firm received a special-order inquiry from Venus, Incorporated. Venus desires to market a skateboard similar to one of Jupiter's and has offered to purchase 11,000 units if the order can be completed in three months. The cost data for Jupiter's model number 43 skateboard follow. Direct material Direct labor: 0.25 hours at $9.00 Total manufacturing overhead: 0.5 hours at $20 Total $8.20 2.25 10.00 $20.45 Additional data: • The normal selling price of model number 43 is $26.50; however, Venus has offered Jupiter only $15.75 because of the large quantity it is willing to purchase. • Venus requires a modification of the design that will allow a $2.10 reduction in direct-material cost. • Jupiter's production supervisor notes that the company will incur $3,700 in additional setup costs and will have to purchase a $2,400 special device to manufacture these units. The device will be discarded once the special order is completed. • Total manufacturing overhead costs are applied to production at the rate of $20 per machine hour. This figure is based, in part, on budgeted yearly fixed overhead of $750,000 and planned production activity of 60,000 machine hours (5,000 per month). • Jupiter will allocate $1,800 of existing fixed administrative costs to the order as "... part of the cost of doing business."
Jupiter Corporation manufactures skateboards. Several weeks ago, the firm received a special-order inquiry from Venus, Incorporated. Venus desires to market a skateboard similar to one of Jupiter's and has offered to purchase 11,000 units if the order can be completed in three months. The cost data for Jupiter's model number 43 skateboard follow. Direct material Direct labor: 0.25 hours at $9.00 Total manufacturing overhead: 0.5 hours at $20 Total $8.20 2.25 10.00 $20.45 Additional data: • The normal selling price of model number 43 is $26.50; however, Venus has offered Jupiter only $15.75 because of the large quantity it is willing to purchase. • Venus requires a modification of the design that will allow a $2.10 reduction in direct-material cost. • Jupiter's production supervisor notes that the company will incur $3,700 in additional setup costs and will have to purchase a $2,400 special device to manufacture these units. The device will be discarded once the special order is completed. • Total manufacturing overhead costs are applied to production at the rate of $20 per machine hour. This figure is based, in part, on budgeted yearly fixed overhead of $750,000 and planned production activity of 60,000 machine hours (5,000 per month). • Jupiter will allocate $1,800 of existing fixed administrative costs to the order as "... part of the cost of doing business."
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
2-a. Assume that Jupiter’s current production activity consumes 70 percent of planned machine-hour activity. Calculate the current available machine-hours.
2-b. Can the company accept the order and meet Venus’s deadline?
Transcribed Image Text:**Jupiter Corporation and Special-Order Management**
Jupiter Corporation, a skateboard manufacturer, recently received a special-order inquiry from Venus, Incorporated. Venus aims to market a skateboard similar to Jupiter’s and offered to purchase 11,000 units, provided the order can be completed in three months. Detailed below are the cost data for Jupiter’s model number 43 skateboards:
- **Direct Material:** $8.20
- **Direct Labor:** 0.25 hours at $9.00 = $2.25
- **Total Manufacturing Overhead:** 0.5 hours at $20 = $10.00
- **Total Cost per Unit:** $20.45
**Additional Data:**
- The normal selling price of model number 43 is $26.50. However, Venus offers only $15.75 due to the large quantity it plans to purchase.
- Venus requires a design modification, which reduces the direct-material cost by $2.10 per unit.
- The production supervisor noted that the company will incur $3,700 in additional setup costs and will need to purchase a $2,400 special device to manufacture these units. This device will be discarded after completing the special order.
- Total manufacturing overhead costs are applied at the rate of $20 per machine hour. This is based on a yearly fixed overhead budget of $750,000 and planned production activity of 60,000 machine hours (5,000 per month).
- Jupiter will allocate $1,800 of existing fixed administrative costs to the order as a "part of the cost of doing business."
This scenario highlights the critical needs for cost management and pricing strategies when dealing with special orders in manufacturing. Understanding the impacts of such decisions on overall profitability and resource allocation is essential for business planning and operations.
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