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

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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).  

  1. What is Oat Treats' relevant cost? 
  2. What does Simmons Cereal's offer cost? 
  3. 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.
Transcribed Image Text:### 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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