P5.5 (LO 1, 2, 3), AP The management team of Mohamed Industries was evaluating its performance for the first half of the year. Production and sales of its fans were on budget at 3,000 units to date, with the following income statement reflecting its income for the first half of the year. Sales $255,000 Variable costs: DM $ 45,000 DL 30,000 Variable MOH 9,000 Variable selling 6,000 90,000 Contribution margin 165,000 Fixed costs: Fixed MOH 36,000 Fixed selling 110,000 146,000 Operating income (loss) $ 19,000 Orders for the second half of the year were coming in slower than what the company had been expecting. When a new customer called and requested a special discount, the sales team listened. Required: a. Assume the customer requests 200 units in the special order and offers $50 per unit. Since the customer came directly to the company, no variable selling cost would be incurred. How much better or worse off will Mohamed Industries be if it accepts this special order, assuming it has enough idle capacity for the order? b. Assume instead that the customer requests 100 units in the special order and offers $40 per unit. Mohamed management still believes there will be enough capacity to take on the special order. This time, however, variable selling costs will be incurred because the customer is working through a sales representative. How much better or worse off will Mohamed Industries be if it accepts this special order? c. Assume instead the customer requests 150 units and both a discounted price of $45 per unit and a custom- ized version of the fan. In order to make the customized version, Mohamed will need to purchase a special piece of equipment for $3,200, but it will not incur any variable selling costs for this order. How much better or worse off will the company be if it uses its available capacity and accepts this special order? d. Discuss any qualitative aspects that will need to be considered before any of the above special orders would be accepted, even if they are financially beneficial to the company.
P5.5 (LO 1, 2, 3), AP The management team of Mohamed Industries was evaluating its performance for the first half of the year. Production and sales of its fans were on budget at 3,000 units to date, with the following income statement reflecting its income for the first half of the year. Sales $255,000 Variable costs: DM $ 45,000 DL 30,000 Variable MOH 9,000 Variable selling 6,000 90,000 Contribution margin 165,000 Fixed costs: Fixed MOH 36,000 Fixed selling 110,000 146,000 Operating income (loss) $ 19,000 Orders for the second half of the year were coming in slower than what the company had been expecting. When a new customer called and requested a special discount, the sales team listened. Required: a. Assume the customer requests 200 units in the special order and offers $50 per unit. Since the customer came directly to the company, no variable selling cost would be incurred. How much better or worse off will Mohamed Industries be if it accepts this special order, assuming it has enough idle capacity for the order? b. Assume instead that the customer requests 100 units in the special order and offers $40 per unit. Mohamed management still believes there will be enough capacity to take on the special order. This time, however, variable selling costs will be incurred because the customer is working through a sales representative. How much better or worse off will Mohamed Industries be if it accepts this special order? c. Assume instead the customer requests 150 units and both a discounted price of $45 per unit and a custom- ized version of the fan. In order to make the customized version, Mohamed will need to purchase a special piece of equipment for $3,200, but it will not incur any variable selling costs for this order. How much better or worse off will the company be if it uses its available capacity and accepts this special order? d. Discuss any qualitative aspects that will need to be considered before any of the above special orders would be accepted, even if they are financially beneficial to the company.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:P5.5 (LO 1, 2, 3), AP The management team of Mohamed Industries was evaluating its performance for the
first half of the year. Production and sales of its fans were on budget at 3,000 units to date, with the following
income statement reflecting its income for the first half of the year.
Sales
$255,000
Variable costs:
DM
$ 45,000
DL
30,000
Variable MOH
9,000
Variable selling
6,000
90,000
Contribution margin
165,000
Fixed costs:
Fixed MOH
36,000
Fixed selling
110,000
146,000
Operating income (loss)
$ 19,000
Orders for the second half of the year were coming in slower than what the company had been expecting.
When a new customer called and requested a special discount, the sales team listened.
Required:
a. Assume the customer requests 200 units in the special order and offers $50 per unit. Since the customer
came directly to the company, no variable selling cost would be incurred. How much better or worse off will
Mohamed Industries be if it accepts this special order, assuming it has enough idle capacity for the order?
b. Assume instead that the customer requests 100 units in the special order and offers $40 per unit. Mohamed
management still believes there will be enough capacity to take on the special order. This time, however,
variable selling costs will be incurred because the customer is working through a sales representative. How
much better or worse off will Mohamed Industries be if it accepts this special order?
c. Assume instead the customer requests 150 units and both a discounted price of $45 per unit and a custom-
ized version of the fan. In order to make the customized version, Mohamed will need to purchase a special
piece of equipment for $3,200, but it will not incur any variable selling costs for this order. How much
better or worse off will the company be if it uses its available capacity and accepts this special order?
d. Discuss any qualitative aspects that will need to be considered before any of the above special orders would
be accepted, even if they are financially beneficial to the company.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education