Required information [The following information applies to the questions displayed below.] Green Grow Incorporated (GGI) manufactures lawn fertilizer. Because of the product's very high quality, GGI often receives special orders from agricultural research groups. For each type of fertilizer sold, each bag is carefully filled to have the precise mix of components advertised for that type of fertilizer. GGI's operating capacity is 33,000 one-hundred-pound bags per month, and it currently is selling 31,000 bags manufactured in 31 batches of 1,000 bags each. The firm just received a request for a special order of 7,200 one-hundred-pound bags of fertilizer for $200,000 from APAC, a research organization. The production costs would be the same, but there would be no variable selling costs. Delivery and other packaging and distribution services would cause a one-time $4,400 cost for GGI. The special order would be processed in two batches of 3,600 bags each. (No incremental batch-level costs are anticipated. Most of the batch-level costs in this case are short-term fixed costs, such as salaries and depreciation.) The following information is provided about GGI's current operations: Sales and production cost data for 31,000 bags, per bag: Sales price Variable manufacturing costs Variable selling costs. Fixed manufacturing costs Fixed marketing costs $ 46 12 3 21 7 No marketing costs would be associated with the special order. Because the order would be used in research and consistency is critical, APAC requires that GGI fill the entire order of 7,200 bags. Assume that the $21.00 fixed manufacturing overhead cost per unit consists of facility-level costs ($18.00/unit at the 31,000-unit output level), with the remainder being setup-related (i.e., batch-level) costs. Assume that the setup-related costs increase in total with the number of batches produced and that the facility-level fixed costs do not vary in total, with either the number of units produced or the number of batches produced during a period. Required: 1. What is the total fixed manufacturing overhead cost for the period? Break down (that is, decompose) this total cost into its component parts (i.e., batch-related overhead costs and facility-related fixed overhead costs). 2. Calculate the relevant unit and total costs of the special order, including the new information about batch-related costs. Assume, as before, the one-time delivery cost of $4,400. 3. If accepted, how would the special order affect GGI's short-term operating income?
Required information [The following information applies to the questions displayed below.] Green Grow Incorporated (GGI) manufactures lawn fertilizer. Because of the product's very high quality, GGI often receives special orders from agricultural research groups. For each type of fertilizer sold, each bag is carefully filled to have the precise mix of components advertised for that type of fertilizer. GGI's operating capacity is 33,000 one-hundred-pound bags per month, and it currently is selling 31,000 bags manufactured in 31 batches of 1,000 bags each. The firm just received a request for a special order of 7,200 one-hundred-pound bags of fertilizer for $200,000 from APAC, a research organization. The production costs would be the same, but there would be no variable selling costs. Delivery and other packaging and distribution services would cause a one-time $4,400 cost for GGI. The special order would be processed in two batches of 3,600 bags each. (No incremental batch-level costs are anticipated. Most of the batch-level costs in this case are short-term fixed costs, such as salaries and depreciation.) The following information is provided about GGI's current operations: Sales and production cost data for 31,000 bags, per bag: Sales price Variable manufacturing costs Variable selling costs. Fixed manufacturing costs Fixed marketing costs $ 46 12 3 21 7 No marketing costs would be associated with the special order. Because the order would be used in research and consistency is critical, APAC requires that GGI fill the entire order of 7,200 bags. Assume that the $21.00 fixed manufacturing overhead cost per unit consists of facility-level costs ($18.00/unit at the 31,000-unit output level), with the remainder being setup-related (i.e., batch-level) costs. Assume that the setup-related costs increase in total with the number of batches produced and that the facility-level fixed costs do not vary in total, with either the number of units produced or the number of batches produced during a period. Required: 1. What is the total fixed manufacturing overhead cost for the period? Break down (that is, decompose) this total cost into its component parts (i.e., batch-related overhead costs and facility-related fixed overhead costs). 2. Calculate the relevant unit and total costs of the special order, including the new information about batch-related costs. Assume, as before, the one-time delivery cost of $4,400. 3. If accepted, how would the special order affect GGI's short-term operating income?
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter20: Inventory Management: Economic Order Quantity, Jit, And The Theory Of Constraints
Section: Chapter Questions
Problem 17E
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