The Comfy Company manufactures slippers and sells them at $11 a pair. Variable manufacturing cost is a $5 pair, and allocated fixed manufacturing cost is a $3 pair. It has enough idle capacity available to accept a one-time-only special order of 5000 pairs of slippers at $8 a pair. Comfy will not incur any marketing costs as a result of the special order. What would the effect on operating income be if the special order could be accepted without affecting normal sales: (a) $0, (b) $15000 increase, (c) $25000 increase, or (d) $40000 increase? Show your calculations. The Houston Company manufactures Part No. 498 for use in its production line. The manufacturing cost per unit for 25,000 units of Part No. 498 is as follows: Direct materials $4 Variable direct manufacturing labor 38 Variable manufacturing overhead 15 Fixed manufacturing overhead allocated 18 Total manufacturing cost per unit $75 The Cushion Company has offered to sell 25,000 units of Part No. 498 to Houston for $71 per unit. Houston will make the decision to buy the part from Cushion if there is an overall savings of at least $20,000 for Houston. If Houston accepts Cushion's offer, $7 per unit of the fixed overhead allocated would be eliminated. Furthermore, Houston has determined that the released facilities could be used to save relevant costs in the manufacture of Part No. 575. For Houston to achieve an overall savings of $20,000, the amount of relevant costs that would have to be saved by using the released facilities in the manufacture of Part No. 575 would be which of the following: (a) $100,000, (b) $195,000, (c) $95,000 or (d) $275,000? Show your calculations. What other factors might Houston consider before outsourcing to Cushion?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter10: Short-term Decision Making

Section: Chapter Questions

Problem 7EB: Oat Treats manufactures various types of cereal bars featuring oats. Simmons Cereal Company has...

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The Comfy Company manufactures slippers and sells them at $11 a pair. Variable manufacturing cost is a $5 pair, and allocated fixed manufacturing cost is a $3 pair. It has enough idle capacity available to accept a one-time-only special order of 5000 pairs of slippers at $8 a pair. Comfy will not incur any marketing costs as a result of the special order. What would the effect on operating income be if the special order could be accepted without affecting normal sales: (a) $0, (b) $15000 increase, (c) $25000 increase, or (d) $40000 increase? Show your calculations.

The Houston
Company manufactures Part No. 498 for use in its production line. The manufacturing cost per unit for 25,000
units of Part No. 498 is as follows:

Direct materials	$4
Variable direct manufacturing labor	38
Variable manufacturing overhead	15
Fixed manufacturing overhead allocated	18
Total manufacturing cost per unit	$75

The Cushion Company has offered to sell 25,000 units of Part No. 498 to Houston for $71 per unit. Houston will make the decision to buy the part from Cushion if there is an overall savings of at least $20,000 for Houston. If Houston
accepts Cushion's offer, $7 per unit of the fixed overhead allocated would be eliminated. Furthermore, Houston
has determined that the released facilities could be used to save relevant costs in the manufacture of Part No. 575.

For Houston to achieve an overall savings of $20,000, the amount of relevant costs that would have to be saved by using the released facilities in the manufacture of Part No. 575 would be which of the following: (a) $100,000, (b)

$195,000, (c) $95,000 or (d) $275,000? Show your calculations. What other factors might Houston consider before outsourcing to Cushion?

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