Power Trampolines produces fitness trampolines for both personal and commercial use. An up-and-coming fitness. facility brand, Bounce It Out, has just asked Power Trampolines for a quote to purchase 300 trampolines for use in its facilities. Power Trampolines provided the following quote to Bounce It Out: Quote for Bounce It Out Manufacturing Costs Direct Materials $11,850 Direct Labor 8, 500 Manufacturing Overhead 15,800 Total Costs $36, 150 Markup (per company policy) 60% Total Estimated Price $57,840 As a fairly new company, Bounce It Out is unable to pay this amount. They provide a counter-offer of $45,000 for the 300 trampolines. The company asks for your help in deciding whether or not to accept this offer. They provide you with the following information to aid in your decision: - They have excess capacity and could manufacture the 300 trampolines without impacting their other manufacturing needs - Manufacturing overhead is allocated based on direct labor dollars -Budgeted manufacturing overhead is $8,000,000 for the current year. Of this amount, $6,000,000 is fixed. Of the $15,800 of manufacturing overhead shown on the Bounce It Out quote, only $3,950 is driven by the special order; $11,850 is a fixed cost. - Fixed selling and administrative costs are estimated to be $3,000,000. - Variable selling and administrative costs are estimated to be $10 per unit sold/manufactured. Required: (a) By how much would Power Trampoline's profit change if they accept Bounce It Out's counter offer? (b) Now assume that Power Trampoline is actually operating at capacity and they have no excess, thus they could sell all 300 trampolines at its usual markup to the market. What is the opportunity cost of accepting Bounce It Out's counter offer?

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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Transcribed Image Text:Power Trampolines produces fitness trampolines for both personal and commercial use. An up-and-coming fitness. facility brand, Bounce It Out, has just asked Power Trampolines for a quote to purchase 300 trampolines for use in its facilities. Power Trampolines provided the following quote to Bounce It Out: Quote for Bounce It Out Manufacturing Costs Direct Materials $11,850 Direct Labor 8, 500 Manufacturing Overhead 15,800 Total Costs $36, 150 Markup (per company policy) 60% Total Estimated Price $57,840 As a fairly new company, Bounce It Out is unable to pay this amount. They provide a counter-offer of $45,000 for the 300 trampolines. The company asks for your help in deciding whether or not to accept this offer. They provide you with the following information to aid in your decision: - They have excess capacity and could manufacture the 300 trampolines without impacting their other manufacturing needs - Manufacturing overhead is allocated based on direct labor dollars -Budgeted manufacturing overhead is $8,000,000 for the current year. Of this amount, $6,000,000 is fixed. Of the $15,800 of manufacturing overhead shown on the Bounce It Out quote, only $3,950 is driven by the special order; $11,850 is a fixed cost. - Fixed selling and administrative costs are estimated to be $3,000,000. - Variable selling and administrative costs are estimated to be $10 per unit sold/manufactured. Required: (a) By how much would Power Trampoline's profit change if they accept Bounce It Out's counter offer? (b) Now assume that Power Trampoline is actually operating at capacity and they have no excess, thus they could sell all 300 trampolines at its usual markup to the market. What is the opportunity cost of accepting Bounce It Out's counter offer?

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