MA2-Relevant Costing Problem 4 (Accept or Reject an Order) As a result of an expansion program, Marianas, Inc., has excess capacity of 40,000 machine hours, which is expected to be absorbed by the domestic market in a few months. The company has received inquiries from two companies located in another country. One offers to buy 12,000 units of Product A at P1.20 per unit; the second offers to buy 13,000 units of Product B at P1.40 per unit. Marianas, Inc. can accept only one of these two offers. The standard cost for these two products is as follows: PRODUCT PRODUCT P 0.50 0.20 P0.70 0.24 0.56 P 1.50 Materials Labor Factory overhead Total standard cost 0.40 P1.10 Factory overhead is applied on a machine-hour basis at P11.20 per hour, 25% factory overhead is estimated to be fixed. No marketing and administrative expenses would be applicable to either order. Transportation charges are to be paid by the buyer, Required: Which order should be accepted?
MA2-Relevant Costing Problem 4 (Accept or Reject an Order) As a result of an expansion program, Marianas, Inc., has excess capacity of 40,000 machine hours, which is expected to be absorbed by the domestic market in a few months. The company has received inquiries from two companies located in another country. One offers to buy 12,000 units of Product A at P1.20 per unit; the second offers to buy 13,000 units of Product B at P1.40 per unit. Marianas, Inc. can accept only one of these two offers. The standard cost for these two products is as follows: PRODUCT PRODUCT P 0.50 0.20 P0.70 0.24 0.56 P 1.50 Materials Labor Factory overhead Total standard cost 0.40 P1.10 Factory overhead is applied on a machine-hour basis at P11.20 per hour, 25% factory overhead is estimated to be fixed. No marketing and administrative expenses would be applicable to either order. Transportation charges are to be paid by the buyer, Required: Which order should be accepted?
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text:MA2- Relevant Costing
Problem 4 (Accept or Reject an Order)
As a result of an expansion program, Marianas, Inc., has excess capacity of 40,000 machine hours, which
is expected to be absorbed by the domestic market in a few months.
The company has received inquiries from two companies located in another country. One offers to buy
12,000 units of Product A at P1.20 per unit; the second offers to buy 13,000 units of Product B at P1.40 per
unit. Marianas, Inc. can accept only one of these two offers.
The standard cost for these two products is as follows:
PRODUCT PRODUCT
в
P0.70
0.24
A
P0.50
0.20
Materials
Labor
Factory overhead
Total standard cost
0.40
P1.10
0.56
P1.50
Factory overhead is applied on a machine-hour basis at P11.20 per hour, 25% factory overhead is
estimated to be fixed. No marketing and administrative expenses would be applicable to either order.
Transportation charges are to be paid by the buyer,
Required: Which order should be accepted?
Probiem 5 (Special Order)
Kimura Company produces a single product. The costs of producing and selling a single unit of this
product at the company's current activity level of 8,000 units per month are:
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
Variable selling and administrative expenses
Fixed selling and administrative expenses
P 2.50
3.00
0.50
4.25
1.50
2.00
The normal selling price is P15 per unit. The company's capacity is 10,000 units per month. An order has
been received from a potential customer overseas for 2,000 units at a price of P12 per unit. This order
would not affect regular sales.
Required:
1. If the order is accepted, by how much will monthly profits increase or decrease? (The order would
not change the company's total fixed costs.)
2. Assume the company has 500 units of this product left over from the last year that are inferior to
the current model. The units must be sold through regular channels at reduced prices. What unit
cost is relevant for establishing a minimum selling price for these units? Explain.
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