Sunglasses sell for about $152 per pair. Suppose the company incurs the following average costs per pair: Direct materials. . . . . . . . . . . . . . . . . . . . . . . $42 Direct labor. . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Variable manufacturing overhead. . . . . . . . 9 Variable marketing expenses. . . . . . . . . . . 2 Fixed manufacturing overhead. . . . . . . . . . 20* Total cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . $84 * $2,200,000 total fixed manufacturing overhead ÷ 110,000 pairs of sunglasses Jasper Cole has enough idle capacity to accept a one-time-only special order from Montana Glasses for 17,000 pairs of sunglasses at $72 per pair. Jasper Cole will not incur any variable marketing expenses for the order. 1. How would accepting the order affect Jasper Cole's operating income? In addition to the special order's effect on profits, what other (longer-term qualitative) factors should Jasper Cole's managers consider in deciding whether to accept the order? Total Order Incremental Analysis of Special Sales Order Decision Per Unit (17,000 units) Revenue from special order ? ? Less variable expense associated with the order: - - Variable manufacturing costs ? ? Contribution margin ? ? Less: Additional fixed expenses associated with the order - ? Increase (decrease) in operating income from the special order - ?
Sunglasses sell for about $152 per pair. Suppose the company incurs the following average costs per pair: Direct materials. . . . . . . . . . . . . . . . . . . . . . . $42 Direct labor. . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Variable manufacturing overhead. . . . . . . . 9 Variable marketing expenses. . . . . . . . . . . 2 Fixed manufacturing overhead. . . . . . . . . . 20* Total cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . $84 * $2,200,000 total fixed manufacturing overhead ÷ 110,000 pairs of sunglasses Jasper Cole has enough idle capacity to accept a one-time-only special order from Montana Glasses for 17,000 pairs of sunglasses at $72 per pair. Jasper Cole will not incur any variable marketing expenses for the order. 1. How would accepting the order affect Jasper Cole's operating income? In addition to the special order's effect on profits, what other (longer-term qualitative) factors should Jasper Cole's managers consider in deciding whether to accept the order? Total Order Incremental Analysis of Special Sales Order Decision Per Unit (17,000 units) Revenue from special order ? ? Less variable expense associated with the order: - - Variable manufacturing costs ? ? Contribution margin ? ? Less: Additional fixed expenses associated with the order - ? Increase (decrease) in operating income from the special order - ?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Topic Video
Question
Jasper Cole
Sunglasses sell for about $152 per pair. Suppose the company incurs the following average costs per pair:|
Direct materials. . . . . . . . . . . . . . . . . . . . . . .
|
$42
|
|---|---|
|
Direct labor. . . . . . . . . . . . . . . . . . . . . . . . . . .
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11
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|
Variable manufacturing
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9
|
|
Variable marketing expenses. . . . . . . . . . .
|
2
|
|
Fixed manufacturing overhead. . . . . . . . . .
|
20*
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|
Total cost. . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
$84
|
|
* $2,200,000 total fixed manufacturing overhead ÷ 110,000 pairs of sunglasses
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Montana Glasses for 17,000 pairs of sunglasses at $72 per pair. Jasper Cole will not incur any variable marketing expenses for the order.
|
1.
|
How would accepting the order affect Jasper Cole's operating income? In addition to the special order's effect on profits, what other (longer-term qualitative) factors should Jasper Cole's managers consider in deciding whether to accept the order? |
|
|
Total Order
|
|
|---|---|---|
|
Incremental Analysis of Special Sales Order Decision
|
Per Unit
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(17,000 units)
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|
Revenue from special order
|
?
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?
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|
Less variable expense associated with the order:
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- | - |
|
Variable
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?
|
?
|
|
Contribution margin
|
?
|
?
|
|
Less: Additional fixed expenses associated with the order
|
- |
?
|
|
Increase (decrease) in operating income from the special order
|
- |
?
|
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