Sequoia Paper Products, Inc., manufactures boxed stationery for sale to specialty shops. Currently, the company is operating at 90 percent of capacity. A chain of drugstores has offered to buy 30,000 boxes of Sequoia’s blue-bordered thank-you notes as long as the box can be customized with the drugstore chain’s logo. While the normal selling price is $6.00 per box, the chain has offered just $3.10 per box. Sequoia can accommodate the special order without affecting current sales. Unit cost information for a box of thank-you notes follows: Direct materials $1.87 Direct labor 0.33 Variable overhead 0.08 Fixed overhead 2.10 Total cost per box $4.38 Fixed overhead is $420,000 per year and will not be affected by the special order. Normally, there is a commission of 5 percent of price; this will not be paid on the special order since the drugstore chain is dealing directly with the company. The special order will require additional fixed costs of $14,300 for the design and setup of the machinery to stamp the drugstore chain’s logo on each box. Required: 1. Which alternative is more cost effective and by how much? The operating income would increase by $fill in the blank 2. 2. What if Sequoia Paper Products was operating at capacity and accepting the special order would require rejecting an equivalent number of boxes sold to existing customers? Which alternative would be better? Wehner Company is currently manufacturing Part ABS-43, producing 50,000 units annually. The part is used in the production of several products made by Wehner. The cost per unit for ABS-43 is as follows: Direct materials $44.95 Direct labor 8.15 Variable overhead 3.30 Fixed overhead 3.40 Total $59.80 Of the total fixed overhead assigned to ABS-43, $12,150 is direct fixed overhead (the annual lease cost of machinery used to manufacture Part ABS-43), and the remainder is common fixed overhead. An outside supplier has offered to sell the part to Wehner for $56.29. There is no alternative use for the facilities currently used to produce the part. No significant non-unit-based overhead costs are incurred. Required: 1. Should Wehner Company make or buy Part ABS-43? Wehner should the part. This will produce total cost savings of $fill in the blank 2. 2. What is the maximum amount per unit that Wehner would be willing to pay to an outside supplier? Round your answer to the nearest cent. $fill in the blank 3 per unit Fiorello Company manufactures two types of cold-pressed olive oil, Refined Oil and Top Quality Oil, out of a joint process. The joint (common) costs incurred are $86,800 for a standard production run that generates 27,200 gallons of Refined Oil and 13,600 gallons of Top Quality Oil. Additional processing costs beyond the split-off point are $2.45 per gallon for Refined Oil and $2.00 per gallon for Top Quality Oil. Refined Oil sells for $4.25 per gallon, while Top Quality Oil sells for $8.55 per gallon. MangiareBuono, a supermarket chain, has asked Fiorello to supply it with 27,200 gallons of Top Quality Oil at a price of $8.35 per gallon. MangiareBuono plans to have the oil bottled in 16-ounce bottles with its own MangiareBuono label. If Fiorello accepts the order, it will save $0.20 per gallon in packaging of Top Quality Oil. There is sufficient excess capacity for the order. However, the market for Refined Oil is saturated, and any additional sales of Refined Oil would take place at a price of $3.14 per gallon. Assume that no significant non-unit-level activity costs are incurred. Required: 1. What is the profit normally earned on one production run of Refined Oil and Top Quality Oil? $fill in the blank 1 2. Should Fiorello accept the special order?
Sequoia Paper Products, Inc., manufactures boxed stationery for sale to specialty shops. Currently, the company is operating at 90 percent of capacity. A chain of drugstores has offered to buy 30,000 boxes of Sequoia’s blue-bordered thank-you notes as long as the box can be customized with the drugstore chain’s logo. While the normal selling price is $6.00 per box, the chain has offered just $3.10 per box. Sequoia can accommodate the special order without affecting current sales. Unit cost information for a box of thank-you notes follows:
| Direct materials | $1.87 |
| Direct labor | 0.33 |
| Variable |
0.08 |
| Fixed overhead | 2.10 |
| Total cost per box | $4.38 |
Fixed overhead is $420,000 per year and will not be affected by the special order. Normally, there is a commission of 5 percent of price; this will not be paid on the special order since the drugstore chain is dealing directly with the company. The special order will require additional fixed costs of $14,300 for the design and setup of the machinery to stamp the drugstore chain’s logo on each box.
Required:
1. Which alternative is more cost effective and by how much?
The operating income would increase by $fill in the blank 2.
2. What if Sequoia Paper Products was operating at capacity and accepting the special order would require rejecting an equivalent number of boxes sold to existing customers? Which alternative would be better?
Wehner Company is currently manufacturing Part ABS-43, producing 50,000 units annually. The part is used in the production of several products made by Wehner. The cost per unit for ABS-43 is as follows:
| Direct materials | $44.95 |
| Direct labor | 8.15 |
| Variable overhead | 3.30 |
| Fixed overhead | 3.40 |
| Total | $59.80 |
Of the total fixed overhead assigned to ABS-43, $12,150 is direct fixed overhead (the annual lease cost of machinery used to manufacture Part ABS-43), and the remainder is common fixed overhead. An outside supplier has offered to sell the part to Wehner for $56.29. There is no alternative use for the facilities currently used to produce the part. No significant non-unit-based overhead costs are incurred.
Required:
1. Should Wehner Company make or buy Part ABS-43?
Wehner should the part. This will produce total cost savings of $fill in the blank 2.
2. What is the maximum amount per unit that Wehner would be willing to pay to an outside supplier? Round your answer to the nearest cent.
$fill in the blank 3 per unit
Fiorello Company manufactures two types of cold-pressed olive oil, Refined Oil and Top Quality Oil, out of a joint process. The joint (common) costs incurred are $86,800 for a standard production run that generates 27,200 gallons of Refined Oil and 13,600 gallons of Top Quality Oil. Additional
MangiareBuono, a supermarket chain, has asked Fiorello to supply it with 27,200 gallons of Top Quality Oil at a price of $8.35 per gallon. MangiareBuono plans to have the oil bottled in 16-ounce bottles with its own MangiareBuono label.
If Fiorello accepts the order, it will save $0.20 per gallon in packaging of Top Quality Oil. There is sufficient excess capacity for the order. However, the market for Refined Oil is saturated, and any additional sales of Refined Oil would take place at a price of $3.14 per gallon. Assume that no significant non-unit-level activity costs are incurred.
Required:
1. What is the profit normally earned on one production run of Refined Oil and Top Quality Oil?
$fill in the blank 1
2. Should Fiorello accept the special order?
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