Oat Treats manufactures various types of cereal bars featuring oats. Simmons Cereal Company has approached Oat Treats with a proposal to sell the company its top selling oat cereal bar at a price of $27,500 for 20,000 bars. The costs shown are associated with production of 20,000 oat bars currently: The manufacturing overhead consists of $3,000 of variable costs with the balance being allocated to fixed costs.PLEASE NOTE: Costs per unit are rounded to two decimal places and shown with "$" and commas as needed (i.e. $1,234.56). All other dollar amounts are rounded to whole dollars and shown with "$" and commas as needed (i.e. $12,345). What is Oat Treats' relevant cost? What does Simmons Cereal's offer cost? If Oat Treats accepts the offer, what will the effect on profit be?Incremental dollar amount = _________Increase or Decrease? . ___________Please note: Your answer is either "Increase" or "Decrease" - capital first letters and no quotes. ### Cost Breakdown for ManufacturingThis section provides a breakdown of the costs associated with the manufacturing process. The total cost is the sum of direct material, direct labor, and manufacturing overhead.1. **Direct Material**: $14,000 - Costs for raw materials directly used in the production process.2. **Direct Labor**: $6,000 - Wage expenses for workers directly involved in manufacturing the products.3. **Manufacturing Overhead**: $8,000 - Indirect costs related to production, such as utilities, depreciation, and maintenance.**Total Cost**: $28,000 - The cumulative amount spent on producing the goods, combining all the above elements.This breakdown provides a clear understanding of the constituent components of the total manufacturing cost.

The calculation of relevant cost, offer cost and the incremental dollar amount is shown hereunder :…

Answered: What is Oat Treats' relevant cost?…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Oat Treats manufactures various types of cereal bars featuring oats. Simmons Cereal Company has approached Oat Treats with a proposal to sell the company its top selling oat cereal bar at a price of $27,500 for 20,000 bars. The costs shown are associated with production of 20,000 oat bars currently:

The manufacturing overhead consists of $3,000 of variable costs with the balance being allocated to fixed costs.

PLEASE NOTE: Costs per unit are rounded to two decimal places and shown with "$" and commas as needed (i.e. $1,234.56). All other dollar amounts are rounded to whole dollars and shown with "$" and commas as needed (i.e. $12,345).

What is Oat Treats' relevant cost?
What does Simmons Cereal's offer cost?
If Oat Treats accepts the offer, what will the effect on profit be?
- Incremental dollar amount = _________
- Increase or Decrease? . ___________
- Please note: Your answer is either "Increase" or "Decrease" - capital first letters and no quotes.

### Cost Breakdown for Manufacturing

This section provides a breakdown of the costs associated with the manufacturing process. The total cost is the sum of direct material, direct labor, and manufacturing overhead.

1. **Direct Material**: $14,000
- Costs for raw materials directly used in the production process.

2. **Direct Labor**: $6,000
- Wage expenses for workers directly involved in manufacturing the products.

3. **Manufacturing Overhead**: $8,000
- Indirect costs related to production, such as utilities, depreciation, and maintenance.

**Total Cost**: $28,000
- The cumulative amount spent on producing the goods, combining all the above elements.

This breakdown provides a clear understanding of the constituent components of the total manufacturing cost.

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