S Mc Alpena Corporation manufactures smartphone and tablet cases. The following is the cost of each unit. $ 7.35 2.95 0.95 11.70 $ 22.95 Materials Labor Variable overhead Fixed overhead ($1,755,000 per year; 150,000 units per year) Total Decatur Devices has approached Alpena with an offer to buy 3,000 cases at a price of $17.80 each for its new specialty tablet designed for health care workers. The regular price of an Alpena case is $26.50. Alpena has the total capacity to produce 180,000 units without increasing its fixed overhead. Decatur Devices requires that each case use its branding, which requires a more expensi- embossing step. This will result in an additional $2.85 per case labor cost. The material cost of of the Decatur case will be the same a for the current models. The Decatur order will also require a one-time rental of embossing equipment for $6,549. Required: a. Prepare a schedule to show the impact of filling the Decatur Devices order on Alpena's profits for the year. b. Would you recommend that Alpena accept the order? c. Considering only profit, determine the minimum quantity of cases in the special order that would make it profitable, assuming capacity is available. Complete this question by entering your answers in the tabs below. Required A Required B Required C Considering only profit, determine the minimum quantity of cases in the special order that would make it profitable, assuming capacity is available. Quantity of cases 503 units
S Mc Alpena Corporation manufactures smartphone and tablet cases. The following is the cost of each unit. $ 7.35 2.95 0.95 11.70 $ 22.95 Materials Labor Variable overhead Fixed overhead ($1,755,000 per year; 150,000 units per year) Total Decatur Devices has approached Alpena with an offer to buy 3,000 cases at a price of $17.80 each for its new specialty tablet designed for health care workers. The regular price of an Alpena case is $26.50. Alpena has the total capacity to produce 180,000 units without increasing its fixed overhead. Decatur Devices requires that each case use its branding, which requires a more expensi- embossing step. This will result in an additional $2.85 per case labor cost. The material cost of of the Decatur case will be the same a for the current models. The Decatur order will also require a one-time rental of embossing equipment for $6,549. Required: a. Prepare a schedule to show the impact of filling the Decatur Devices order on Alpena's profits for the year. b. Would you recommend that Alpena accept the order? c. Considering only profit, determine the minimum quantity of cases in the special order that would make it profitable, assuming capacity is available. Complete this question by entering your answers in the tabs below. Required A Required B Required C Considering only profit, determine the minimum quantity of cases in the special order that would make it profitable, assuming capacity is available. Quantity of cases 503 units
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:### Alpena Corporation: Cost Analysis of Smartphone and Tablet Cases
Alpena Corporation manufactures smartphone and tablet cases. Below is the detailed cost analysis for producing each unit:
- **Materials**: $7.35
- **Labor**: $2.95
- **Variable Overhead**: $0.95
- **Fixed Overhead**: $11.70 (Based on $1,755,000 per year for 150,000 units per year)
- **Total Cost per Unit**: $22.95
Decatur Devices has approached Alpena with a proposal to purchase 3,000 cases at a unit price of $17.80 for its new specialty tablet meant for healthcare workers. The regular selling price for an Alpena case is $26.50. Alpena’s production capacity can accommodate 180,000 units without necessitating an increase in fixed overhead.
Specific conditions from Decatur Devices include:
- Each case must incorporate Decatur Devices branding, raising additional labor costs by $2.85 per case.
- The material cost for the special order aligns with current costs.
- A one-time rental fee of $6,549 for embossing equipment is required.
### Required Analysis:
1. **Impact Schedule**: Prepare a schedule to analyze how filling the special order affects Alpena’s annual profits.
2. **Recommendation**: Determine if Alpena should accept the special order.
3. **Profitability Threshold**: Calculate the minimum number of cases in the special order required to achieve profitability, assuming capacity availability.
**Interactive Processing:** Complete the associated questions by entering your answers in the provided tabs.
- **Minimum Special Order Quantity for Profitability**: Examined are 503 units as a breakeven point for profitability.
This comprehensive cost breakdown and decision-making process highlights the key components and business considerations involved in special order pricing strategies.
Expert Solution
Step 1: Introduction
Incremental cost is the overall expense incurred as a result of producing one extra unit of a product. By examining the additional costs incurred during the production process, such as raw materials, for one more unit of output, the incremental cost is determined. Companies may increase manufacturing efficiency and profitability by being aware of additional expenses. A business can increase efficiency and make savings by reducing incremental expenses.
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