Required information [The following information applies to the questions displayed below.] Petro Motors Inc. (PMI) produces small gasoline-powered motors for use in lawn mowers. The company has been growing steadily over the past five years and is operating at full capacity. PMI recently completed the addition of new plant and equipment at a cost of $7,800,000, thereby increasing its manufacturing capacity to 100,000 motors annually. The addition to plant and equipment will be depreciated on a straight-line basis over 10 years. Sales of motors were 60,000 units prior to the completion of the additional capacity. Cost records indicated that manufacturing costs had totaled $60 per motor, of which $48 per motor was considered to be variable manufacturing costs. PMI has used the volume of activity at full capacity as the basis for applying fixed manufacturing overhead. The normal selling price is $80 per motor, and PMI pays a 5% commission on the sale of its motors. LawnPro.com offered to purchase 35,000 motors at a price of $60 per unit to test the viability of distributing lawn mower replacement motors through its website. PMI would be expected to produce the motors, store them in its warehouse, and ship individual motors to LawnPro.com customers. As orders are placed directly through the LawnPro.com website, they would be forwarded instantly to PMI. No commissions will be paid on this special sales order, and freight charges will be paid by the customer purchasing a motor. d. If relevant cost analysis was not considered, is it likely that a correct special order analysis would have been made?
Required information [The following information applies to the questions displayed below.] Petro Motors Inc. (PMI) produces small gasoline-powered motors for use in lawn mowers. The company has been growing steadily over the past five years and is operating at full capacity. PMI recently completed the addition of new plant and equipment at a cost of $7,800,000, thereby increasing its manufacturing capacity to 100,000 motors annually. The addition to plant and equipment will be depreciated on a straight-line basis over 10 years. Sales of motors were 60,000 units prior to the completion of the additional capacity. Cost records indicated that manufacturing costs had totaled $60 per motor, of which $48 per motor was considered to be variable manufacturing costs. PMI has used the volume of activity at full capacity as the basis for applying fixed manufacturing overhead. The normal selling price is $80 per motor, and PMI pays a 5% commission on the sale of its motors. LawnPro.com offered to purchase 35,000 motors at a price of $60 per unit to test the viability of distributing lawn mower replacement motors through its website. PMI would be expected to produce the motors, store them in its warehouse, and ship individual motors to LawnPro.com customers. As orders are placed directly through the LawnPro.com website, they would be forwarded instantly to PMI. No commissions will be paid on this special sales order, and freight charges will be paid by the customer purchasing a motor. d. If relevant cost analysis was not considered, is it likely that a correct special order analysis would have been made?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
![Required information
[The following information applies to the questions displayed below.]
Petro Motors Inc. (PMI) produces small gasoline-powered motors for use in lawn mowers. The company has been growing
steadily over the past five years and is operating at full capacity. PMI recently completed the addition of new plant and
equipment at a cost of $7,800,000, thereby increasing its manufacturing capacity to 100,000 motors annually. The addition
to plant and equipment will be depreciated on a straight-line basis over 10 years.
Sales of motors were 60,000 units prior to the completion of the additional capacity. Cost records indicated that
manufacturing costs had totaled $60 per motor, of which $48 per motor was considered to be variable manufacturing
costs. PMI has used the volume of activity at full capacity as the basis for applying fixed manufacturing overhead. The
normal selling price is $80 per motor, and PMI pays a 5% commission on the sale of its motors.
LawnPro.com offered to purchase 35,000 motors at a price of $60 per unit to test the viability of distributing lawn mower
replacement motors through its website. PMI would be expected to produce the motors, store them in its warehouse, and
ship individual motors to LawnPro.com customers. As orders are placed directly through the LawnPro.com website, they
would be forwarded instantly to PMI. No commissions will be paid on this special sales order, and freight charges will be
paid by the customer purchasing a motor.
d. If relevant cost analysis was not considered, is it likely that a correct special order analysis would have been made?
Yes or No
Yes
No](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F432d0e5b-976a-477c-8f94-be3c5e253b00%2Fd8763c99-aca7-43b0-b7f8-abccc797c01f%2F064bx3h_processed.png&w=3840&q=75)
Transcribed Image Text:Required information
[The following information applies to the questions displayed below.]
Petro Motors Inc. (PMI) produces small gasoline-powered motors for use in lawn mowers. The company has been growing
steadily over the past five years and is operating at full capacity. PMI recently completed the addition of new plant and
equipment at a cost of $7,800,000, thereby increasing its manufacturing capacity to 100,000 motors annually. The addition
to plant and equipment will be depreciated on a straight-line basis over 10 years.
Sales of motors were 60,000 units prior to the completion of the additional capacity. Cost records indicated that
manufacturing costs had totaled $60 per motor, of which $48 per motor was considered to be variable manufacturing
costs. PMI has used the volume of activity at full capacity as the basis for applying fixed manufacturing overhead. The
normal selling price is $80 per motor, and PMI pays a 5% commission on the sale of its motors.
LawnPro.com offered to purchase 35,000 motors at a price of $60 per unit to test the viability of distributing lawn mower
replacement motors through its website. PMI would be expected to produce the motors, store them in its warehouse, and
ship individual motors to LawnPro.com customers. As orders are placed directly through the LawnPro.com website, they
would be forwarded instantly to PMI. No commissions will be paid on this special sales order, and freight charges will be
paid by the customer purchasing a motor.
d. If relevant cost analysis was not considered, is it likely that a correct special order analysis would have been made?
Yes or No
Yes
No
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