The Lexington Company produces gas grills. This year’s expected production is 20,000 units. Currently, Lexington makes the side burners for its grills. Each grill includes two side burners. Lexington’s management accountant reports the following costs for making the 40,000 burners: Cost per Unit Cost for 40,000 units Direct materials $8.00 $320,000 Direct manufacturing labor 4.00 160,000 Variable manufacturing overhead 2.00 80,000 Inspection, setup, materials handling 8,000 Machine rent 12,000 Allocated fixed costs of plant administration, taxes, and insurance 80,000 Total costs $660,000 Lexington has received an offer from an outside vendor to supply any number of burners Lexington requires at $14.80 per burner. The following additional information is available: Inspection, setup, and materials-handling costs vary with the number of batches in which the burners are produced. Lexington produces burners in batch sizes of 1,000 units. Lexington will produce the 40,000 units in 40 batches. Lexington rents the machine it uses to make the burners. If Lexington buys all of its burners from the outside vendor, it does not need to pay rent on this machine. If Lexington purchases the burners from the outside vendor, the facility where the burners are currently made will remain idle. The allocated fixed plant administration, taxes, and insurance will not change. Q2-4. What other impact should Slugger consider in deciding whether to accept this special order?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The Lexington Company produces gas grills. This year’s expected production is 20,000 units. Currently, Lexington makes the side burners for its grills. Each grill includes two side burners. Lexington’s management accountant reports the following costs for making the 40,000 burners:

	Cost per Unit	Cost for 40,000 units
Direct materials	$8.00	$320,000
Direct manufacturing labor	4.00	160,000
Variable manufacturing overhead	2.00	80,000
Inspection, setup, materials handling		8,000
Machine rent		12,000
Allocated fixed costs of plant administration, taxes, and insurance		80,000
Total costs		$660,000

Lexington has received an offer from an outside vendor to supply any number of burners Lexington requires at $14.80 per burner. The following additional information is available:

Inspection, setup, and materials-handling costs vary with the number of batches in which the burners are produced. Lexington produces burners in batch sizes of 1,000 units. Lexington will produce the 40,000 units in 40 batches.
Lexington rents the machine it uses to make the burners. If Lexington buys all of its burners from the outside vendor, it does not need to pay rent on this machine.
If Lexington purchases the burners from the outside vendor, the facility where the burners are currently made will remain idle. The allocated fixed plant administration, taxes, and insurance will not change.

Q2-4. What other impact should Slugger consider in deciding whether to accept this special order?

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