Wham Products, a maker of specialty products, is currently manufacturing and selling a product called Gory Goo. A discount department store, J-Mart, has made a one-time offer to purchase 65,000 units of Gory Goo at $4.00 per unit for sale in J-Mart stores. The name and packaging for these 65,000 units will be changed so as not to appear to be the same as Gory Goo. Since Wham has enough excess capacity, management would naturally like to produce and sell the additional units. But there is concern that $4.00 is below Gory Goo's unit manufacutring costs and well below it's normal selling price, which is set at 50% above unit manufacturing costs. Last year, Gory Goo's unit sales were 400,000 and its total manufacturing costs were: Direct material $440,000 Direct labor 240,000 Variable overhead 280,000 Fixed Overhead 1,480,000 Total manufacturing $2,440,000 In addition to the manufacturing costs, there were selling and administrative expenses associated with Gory Goo. Variable selling and administrative expenses were $1.40 per unit, and fixed selling and administrative expenses were $160,000. For the special order, unit variable manufacturing costs are expected to be the same as they were last year, and fixed manufacturing costs are not expected to increase. Fixed selling and adminstrative expenses ar also not expected to increase, but because the special order units are being sold directly to the J-Mart chain, variable selling and administrative expenses are expected to be only $0.90 per unit. Even though the special order units will have a different name and packaging, Wham's marketing group still believes that approximately 5,000 units from the special order will be sold to customers who would normally purchase Gory Goo from Wham. The group also believes that J-Mart has no other source for the Gory Goo product. REQUIRED If Wham accepts the offer from J-Mart, what will be the effect on firm profits?
Wham Products, a maker of specialty products, is currently manufacturing and selling a product called Gory Goo. A discount department store, J-Mart, has made a one-time offer to purchase 65,000 units of Gory Goo at $4.00 per unit for sale in J-Mart stores. The name and packaging for these 65,000 units will be changed so as not to appear to be the same as Gory Goo. Since Wham has enough excess capacity, management would naturally like to produce and sell the additional units. But there is concern that $4.00 is below Gory Goo's unit manufacutring costs and well below it's normal selling price, which is set at 50% above unit manufacturing costs. Last year, Gory Goo's unit sales were 400,000 and its total manufacturing costs were: Direct material $440,000 Direct labor 240,000 Variable overhead 280,000 Fixed Overhead 1,480,000 Total manufacturing $2,440,000 In addition to the manufacturing costs, there were selling and administrative expenses associated with Gory Goo. Variable selling and administrative expenses were $1.40 per unit, and fixed selling and administrative expenses were $160,000. For the special order, unit variable manufacturing costs are expected to be the same as they were last year, and fixed manufacturing costs are not expected to increase. Fixed selling and adminstrative expenses ar also not expected to increase, but because the special order units are being sold directly to the J-Mart chain, variable selling and administrative expenses are expected to be only $0.90 per unit. Even though the special order units will have a different name and packaging, Wham's marketing group still believes that approximately 5,000 units from the special order will be sold to customers who would normally purchase Gory Goo from Wham. The group also believes that J-Mart has no other source for the Gory Goo product. REQUIRED If Wham accepts the offer from J-Mart, what will be the effect on firm profits?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
can someone help pls.
thanks
Transcribed Image Text:Wham Products, a maker of specialty products, is currently manufacturing and selling a product called Gory Goo. A discount department store, J-Mart, has made a one-time offer to purchase 65,000 units of Gory
Goo at $4.00 per unit for sale in J-Mart stores. The name and packaging for these 65,000 units will be changed so as not to appear to be the same as Gory Goo. Since Wham has enough excess capacity,
management would naturally like to produce and sell the additional units. But there is concern that $4.00 is below Gory Goo's unit manufacutring costs and well below it's normal selling price, which is set at 50%
above unit manufacturing costs.
Last year, Gory Goo's unit sales were 400,000 and its total manufacturing costs were:
Direct material
$440,000
Direct labor
240,000
Variable overhead
280,000
Fixed Overhead
1,480,000
Total manufacturing
$2,440,000
In addition to the manufacturing costs, there were selling and administrative expenses associated with Gory Goo. Variable selling and administrative expenses were $1.40 per unit, and fixed selling and
administrative expenses were $160,000.
For the special order, unit variable manufacturing costs are expected to be the same as they were last year, and fixed manufacturing costs are not expected to increase. Fixed selling and adminstrative expenses are
also not expected to increase, but because the special order units are being sold directly to the J-Mart chain, variable selling and administrative expenses are expected to be only $0.90 per unit.
Even though the special order units will have a different name and packaging, Wham's marketing group still believes that approximately 5,000 units from the special order will be sold to customers who would
normally purchase Gory Goo from Wham. The group also believes that J-Mart has no other source for the Gory Goo product.
REQUIRED
If Wham accepts the offer from J-Mart, what will be the effect on firm profits?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education