Latifah Industries incurs $12 in variable costs and $5 in allocated fixed costs to produce a product that sells for $28 per unit. A buyer in Mexico offers to purchase 2,400 units at $18 each. Latifah Industries has excess capacity and can handle the additional production. What effect will acceptance of the offer have on net income?

Latifah Industries incurs $12 in variable costs and $5 in allocated fixed costs to produce a product that sells for $28 per unit. A buyer in Mexico offers to purchase 2,400 units at $18 each. Latifah Industries has excess capacity and can handle the additional production. What effect will acceptance of the offer have on net income?

Principles of Cost Accounting

17th Edition

ISBN:9781305087408

Author:Edward J. Vanderbeck, Maria R. Mitchell

Publisher:Edward J. Vanderbeck, Maria R. Mitchell

Chapter10: Cost Analysis For Management Decision Making

Section: Chapter Questions

Problem 11P: Emerald Island Company is considering building a manufacturing plant in County Kerry. Predicting...

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Warner Manufacturing incurs $16 in variable costs and $7 in allocated fixed costs to produce a product that sells for $35 per unit. A buyer in Canada offers to purchase 1,800 units at $20 each. Warner Manufacturing has excess capacity and can handle the additional production. What effect will acceptance of the offer have on net income?
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Use this information for Stryker Industries to answer the question that follow.Stryker Industries received an offer from an exporter for 15,000 units of product at $17.50 per unit. The acceptance of the offer will not affect normal production or domestic sales prices. The following data are available: Domestic unit sales price $20 Unit manufacturing costs: Variable 11 Fixed 1 What is the amount of income or loss from the acceptance of the offer?
Required:(a) GEM has an opportunity to sell 10 000 units to an overseas customer. Import duties and other special costs associated with this order would total $42 000. The only selling costs that would be associated with the order would be a shipping cost of $9.00 per unit. What would be the minimum acceptable unit price for GEM to consider this order? (hint: GEM would not accept the order if it would reduce the company’s profit) (b) The company has 200 units of Flicks on hand that were produced two months ago. Due to blemishes on the units, it will be impossible to sell these units at the normal price. If the company wishes to sell them through regular sales channels, what would be the relevant cost for setting the minimum price? Explain. (c) “All future costs are relevant in decision making.” Do you agree? Explain.
Solution
It costs Bonita Industries $11 of variable and $5 of fixed costs to produce one scale which normally sells for $43. A foreign wholesaler offers to purchase 4100 scales at $15 each. Garner would incur special shipping costs of $1 per scale if the order were accepted. Bonita has sufficient unused capacity to produce the 4100 scales. If the special order is accepted, what will be the effect on net income? O $12300 increase $12300 decrease O $49200 decrease $61500 increase
Oriole Company incurs a cost of $34 per unit, of which $19 is variable, to make a product that normally sells for $59. A foreign wholesaler offers to buy 5,200 units at $31 each. Oriole will incur additional costs of $1 per unit to imprint a logo and to pay for shipping. Compute the increase or decrease in net income Oriole will realize by accepting the special order, assuming Oriole has sufficient excess operating capacity. (Enter negative amounts using either a negative sign preceding the number (e.g., -45) or parentheses (e.g., (45)).) Revenues $ Costs Net income $ Reject Accept Increase (Decrease) $ $ Should Oriole Company accept the special order? $ $ Oriole Company should ▾ the special order.
Martin Corporation incurs a cost of $38.65 per unit, of which $22.35 is variable, to make a product that normally sells for $60.50. A foreign wholesaler offers to buy 6,100 units at $34.20 each. Martin will incur additional costs of $2.85 per unit to imprint a logo and to pay for shipping. Compute the increase or decrease in net income Martin will realize by accepting the special order, assuming the company has sufficient excess operating capacity.
If the offer is accepted with unused capacity, fixed costs will not increase. The amount of the sales price above variable costs will contribute to covering fixed costs. The firm will have $22400 [4000 units X ($23.6 - $18)] more than if it does not accept the offer. Thus, net income will increase by $22400. It costs Sunland Company $18 of variable costs and $8 of fixed costs to produce its product that sells for $36. Wildhorse Company, a foreign buyer, offers to purchase 4000 units at $23.6 each. If the special offer is accepted and produced with unused capacity, net income will: increase $16000. increase $22400. decrease $11200. increase $11200.
Kirby company can manufacture a product for $52 per unit ($36 variable and $16 fixed), a foreign wholesale offers to purchase 10,000 units at $42 each although normal selling price is $76 per unit. If the order is accepted Kirby would incur special shipping costs of $4 per unit. Kirby has sufficient unused capacity to product the 10,000 units. If the special order is acdpeee what will be the effect on net income?