Special-Order Decision, Alternatives, Relevant Costs Sequoia Paper Products, Inc., manufactures boxed stationery for sale to specialty shops. Currently, the company is operating at 80 percent of capacity. A chain of drugstores has offered to buy 33,000 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 $5.80 per box, the chain has offered just $3.20 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. $2.00 Direct labor 0.33 Variable overhead 0.07 Fixed overhead 2.20 Total cost per box $4.60 Fixed overhead is $393,000 per year and will not be affected by the special order. Normally, there is a commission of 7 percent of price; this will not be paid on the specia order since the drugstore chain is dealing directly with the company. The special order will require additional fixed costs of $15,300 for the design and setup of the machinery to stamp the drugstore chain's logo on each box.
Special-Order Decision, Alternatives, Relevant Costs Sequoia Paper Products, Inc., manufactures boxed stationery for sale to specialty shops. Currently, the company is operating at 80 percent of capacity. A chain of drugstores has offered to buy 33,000 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 $5.80 per box, the chain has offered just $3.20 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. $2.00 Direct labor 0.33 Variable overhead 0.07 Fixed overhead 2.20 Total cost per box $4.60 Fixed overhead is $393,000 per year and will not be affected by the special order. Normally, there is a commission of 7 percent of price; this will not be paid on the specia order since the drugstore chain is dealing directly with the company. The special order will require additional fixed costs of $15,300 for the design and setup of the machinery to stamp the drugstore chain's logo on each box.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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