Structuring a Special-Order Problem The Millenium Company has been approached by a new customer with an offer to purchase 10,000 units of its model F80 at a price of $4.00 each. The new customer is geographically separated from the company's other customers, and existing sales would not be affected. Millenium normally produces 75,000 units of F80 per year but only plans to produce and sell 60,000 in the coming year. The normal sales price is $12 per unit. Unit cost information for the normal level of activity is as follows: Direct materials Direct labor Variable overhead Fixed overhead Total $1.75 2.50 1.50 3.25 $9.00 Fixed overhead will not be affected by whether or not the special order is accepted. Required: 1. Should the company accept or reject the special order? 2. By how much will operating income increase or decrease if the order is accepted? by W

Structuring a Special-Order Problem The Millenium Company has been approached by a new customer with an offer to purchase 10,000 units of its model F80 at a price of $4.00 each. The new customer is geographically separated from the company's other customers, and existing sales would not be affected. Millenium normally produces 75,000 units of F80 per year but only plans to produce and sell 60,000 in the coming year. The normal sales price is $12 per unit. Unit cost information for the normal level of activity is as follows: Direct materials Direct labor Variable overhead Fixed overhead Total $1.75 2.50 1.50 3.25 $9.00 Fixed overhead will not be affected by whether or not the special order is accepted. Required: 1. Should the company accept or reject the special order? 2. By how much will operating income increase or decrease if the order is accepted? by W

Principles of Cost Accounting

17th Edition

ISBN:9781305087408

Author:Edward J. Vanderbeck, Maria R. Mitchell

Publisher:Edward J. Vanderbeck, Maria R. Mitchell

Chapter10: Cost Analysis For Management Decision Making

Section: Chapter Questions

Problem 13P: Deuce Sporting Goods manufactures a high-end model tennis racket. The company’s forecasted income...

See similar textbooks

Similar questions

Deuce Sporting Goods manufactures a high-end model tennis racket. The company’s forecasted income statement for the year, before any special orders, is as follows: Fixed costs included in the forecasted income statement are $400,000 in manufacturing cost of goods sold and $200,000 in selling expenses. A new client placed a special order with Deuce, offering to buy 1,000 tennis rackets for $100.00 each. The company will incur no additional selling expenses if it accepts the special order. Assuming that Deuce has sufficient capacity to manufacture 1,000 more tennis rackets, by what amount would differential income increase (decrease) as a result of accepting the special order? (Hint: First compute the variable cost per unit relevant to this decision.)
Current Attempt in Progress Your answer is partially correct. Cullumber Company incurs a cost of $35 per unit, of which $19 is variable, to make a product that normally sells for $58. A foreign wholesaler offers to buy 5,600 units at $30 each. Cullumber will incur additional costs of $1 per unit to imprint a logo and to pay for shipping. Compute the increase or decrease in net income Cullumber will realize by accepting the special order, assuming Cullumber has sufficient excess operating capacity. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Revenues Costs $ Net income $ Reject $ $ Should Cullumber Company accept the special order? Cullumber company should accept V the special order. Accept 168000 112000 i 56000 $ $ Net Income Increase (Decrease) 168000 112000 56000
5. What is the maximum price that Silven should be willing to pay the outside supplier for a box of 24 tubes? 6. Instead of sales of 110,000 boxes of tubes, revised estimates show a sales volume of 150,000 boxes of tubes. At this higher sales volume, Silven would need to rent extra equipment at a cost of $60,000 per year to make the additional 40,000 boxes of tubes. Assuming that the outside supplier will not accept an order for less than 150,000 boxes of tubes, what is the financial advantage (disadvantage) in total (not per box) if Silven buys 150,000 boxes of tubes from the outside supplier? Given this new information, should Silven Industries make or buy the tubes? 7. Refer to the data in Required 6. Assume that the outside supplier will accept an order of any size for the tubes at a price of $1.70 per box. How many boxes of tubes should Silven make? How many boxes of tubes should it buy from the outside supplier?
5. Assume that Cane expects to produce and sell 113,000 Alphas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 28,000 additional Alphas for a price of $152 per unit; however pursuing this opportunity will decrease Alpha sales to regular customers by 13,000 units. What is the financial advantage (disadvantage) of accepting the new customer’s order? 7. Assume that Cane normally produces and sells 58,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line? 8. Assume that Cane normally produces and sells 78,000 Betas and 98,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 11,000 units. What is the financial advantage (disadvantage) of discontinuing the Beta product line? 9. Assume that Cane expects to produce and sell 98,000 Alphas during the current year. A supplier has offered to manufacture and deliver…
Lobby Company produces and sells its only product XT-300. The company has been approached by a new customer from the USA with an offer to purchase 15,000 units of XT-300 for $11.50 each. Selling to the US will not affect the company’s other customers, and existing sales would not be affected. Lobby normally produces 110,000 units per year but only plans to produce and sell 90,000 in the coming year. Exporting the product to the USA will require a further packaging cost of $0.30 per unit. The normal sales price is $16 per unit. Unit cost information for the normal level of activity is as follows: Direct materials $4.50 Direct labour 4.20 Variable overhead 1.65 Fixed overhead 2.00 Total $12.35 Required: C). Suppose the new customer wants to buy 25,000 units, should Lobby accept the offer? Show with calculations the effect on net income
Lobby Company produces and sells its only product XT-300. The company has been approached by a new customer from the USA with an offer to purchase 15,000 units of XT-300 for $11.50 each. Selling to the US will not affect the company’s other customers, and existing sales would not be affected. Lobby normally produces 110,000 units per year but only plans to produce and sell 90,000 in the coming year. Exporting the product to the USA will require a further packaging cost of $0.30 per unit. The normal sales price is $16 per unit. Unit cost information for the normal level of activity is as follows: Direct materials $4.50 Direct labour 4.20 Variable overhead 1.65 Fixed overhead 2.00 Total $12.35 Required: A). What are the relevant costs and benefits of this special order? B). Will operating income increase or decrease if the order from this new customer is accepted – if so, by how much? C). Suppose the new customer wants to buy 25,000 units, should…
Lobby Company produces and sells its only product XT-300. The company has been approached by a new customer from the USA with an offer to purchase 15,000 units of XT-300 for $11.50 each. Selling to the US will not affect the company’s other customers, and existing sales would not be affected. Lobby normally produces 110,000 units per year but only plans to produce and sell 90,000 in the coming year. Exporting the product to the USA will require a further packaging cost of $0.30 per unit. The normal sales price is $16 per unit. Unit cost information for the normal level of activity is as follows: Direct materials $4.50 Direct labour 4.20 Variable overhead 1.65 Fixed overhead 2.00 Total $12.35 Required: A). What are the relevant costs and benefits of this special order? B). Will operating income increase or decrease if the order from this new customer is accepted – if so, by how much?
Assume again that Andretti Company has sufficient capacity to produce 123,200 Daks each year. A customer in a foreign market wants to purchase 35,200 Daks. If Andretti accepts this order it would have to pay import duties on the Daks of $2.70 per unit and an additional $28,160 for permits and licenses. The only selling costs that would be associated with the order would be $1.60 per unit shipping cost. What is the break-even price per unit on this order? (Round your answers to 2 decimal places.)
Current Attempt in Progress - Your answer is partially correct. At Sheridan Electronics, it costs $33 per unit ($18 variable and $15 fixed) to make an MP3 player that normally sells for $42. A foreign wholesaler offers to buy 4,260 units at $29 each. Sheridan Electronics will incur special shipping costs of $1 per unit. Assuming that Sheridan Electronics has excess operating capacity, indicate the net income (loss) Sheridan Electronics would realize by accepting the special order. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Revenues Costs-Variable manufacturing Shipping Net income $ The special order should be accepted Reject Order 0 0 0 0 Accept Order 123,540 76,680 i 4,260 i 42,600 $ Net Income Increase (Decrease) 123,540 76,680 4,260 42,600
! Required information [The following information applies to the questions displayed below.] Cane Company manufactures two products called Alpha and Beta that sell for $135 and $95, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 105,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Alpha $ 30 Beta Direct materials Direct labor $18 23 16 Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses 10 8 19 21 15 11 18 13 Total cost per unit $115 $87
is dropped? Problem 14 (Special-Order Decision; Flexible and Committed Resources) Dexter Company has been approached by a new custorner with an offer to purchase 1,400 units of Dexter's product at a price of P3 each. The new customer is graphically separated from Dexter's other customers, and there would be no effect on existing sales. Dexter normally produces 10,000 units but only plans to produce and sell 8,000 in the coming year. The normal sales price is P5 per unit. Unit cost information is as follows: PO.75 Direct materials Direct labor Variable overhead Fixed overhead Total 0.80 0.40 2.00 P3.95 If Dexter accepts the order, no fixed manufacturing activities will be affected because there is sufficient excess capacity. However, the distribution center at the warehouse is operating at full capacity and would need to add capacity costing P1,000 for every 5,000 units to e packed and shipped. Required: By how much will profit increase or decrease if the order s accepted?
4 Lowwater Sailmakers manufactures sails for sailboats. The company has the capacity to produce 25,000 sails per year, but is currently producing and selling 20,000 sails per year. The following information relates to current production. If a special sales order is accepted for 4,500 sails at a price of $120 per unit, and fixed costs remain unchanged, how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order.) Sale price per unit $150 Variable costs per unit: Manufacturing Marketing and administratrve $60 $20 Total fixed costs: Manufacturing Marketing and administrative $600,000 S200,000 Increase by $160,000 ) Increase by $150,000 ) Increase by $140,000 Increase by S170,000 ) Increase by S180,000 ()