Special-Order Decision Rianne Company produces a light fixture with the following unit cost: Direct materials $2 Direct labour 1 Variable overhead 3 Fixed overhead Unit cost 2 $8 The production capacity is 300,000 units per year. Because of a depressed housing market, the company expects to produce only 180,000 fixtures for the coming year. The company also has fixed selling costs totalling $500,000 per year and variable selling costs of $1 per unit sold. The fixtures normally sell for $12 each. At the beginning of the year, a customer from a geographic region outside the area normally served by the company offered to buy 100,000 fixtures for $7 each. The customer also offered to pay all transportation costs. Since there would be no sales commissions involved, this order would not have any variable selling costs. Required: 1. Conceptual Connection: Based on a quantitative (numerical) analysis, should the company accept the order? ' the quantitative analysis is $ in favour of the special order. 2. Conceptual Connection: What qualitative factors might impact the decision? Assume that no other orders are expected beyond the regular business and the special order. The input in the box below will not be graded, but may be reviewed and considered by your instructor.
Special-Order Decision Rianne Company produces a light fixture with the following unit cost: Direct materials $2 Direct labour 1 Variable overhead 3 Fixed overhead Unit cost 2 $8 The production capacity is 300,000 units per year. Because of a depressed housing market, the company expects to produce only 180,000 fixtures for the coming year. The company also has fixed selling costs totalling $500,000 per year and variable selling costs of $1 per unit sold. The fixtures normally sell for $12 each. At the beginning of the year, a customer from a geographic region outside the area normally served by the company offered to buy 100,000 fixtures for $7 each. The customer also offered to pay all transportation costs. Since there would be no sales commissions involved, this order would not have any variable selling costs. Required: 1. Conceptual Connection: Based on a quantitative (numerical) analysis, should the company accept the order? ' the quantitative analysis is $ in favour of the special order. 2. Conceptual Connection: What qualitative factors might impact the decision? Assume that no other orders are expected beyond the regular business and the special order. The input in the box below will not be graded, but may be reviewed and considered by your instructor.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Special-Order Decision
Rianne Company produces a light fixture with the following unit cost:
Direct materials
$2
Direct labour
1
Variable overhead
3
Fixed overhead
Unit cost
2
$8
The production capacity is 300,000 units per year. Because of a depressed housing market, the company expects to produce only 180,000 fixtures for the coming year. The company also has fixed selling costs totalling $500,000
per year and variable selling costs of $1 per unit sold. The fixtures normally sell for $12 each.
At the beginning of the year, a customer from a geographic region outside the area normally served by the company offered to buy 100,000 fixtures for $7 each. The customer also offered to pay all transportation costs. Since
there would be no sales commissions involved, this order would not have any variable selling costs.
Required:
1. Conceptual Connection: Based on a quantitative (numerical) analysis, should the company accept the order?
'
the quantitative analysis is $
in favour of
the special order.
2. Conceptual Connection: What qualitative factors might impact the decision? Assume that no other orders are expected beyond the regular business and the special order.
The input in the box below will not be graded, but may be reviewed and considered by your instructor.
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