Principles of Accounting Volume 2
19th Edition
ISBN: 9781947172609
Author: OpenStax
Publisher: OpenStax College
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Chapter 10, Problem 5EA
Shelby Industries has a capacity to produce 45.000 oak shelves per year and is currently selling 40,000 shelves for $32 each. Martin Hardwoods has approached Shelby about buying 1,200 shelves for a new project and is willing to pay $26 each. The shelves can be packaged in bulk; this saves Shelby $1.50 per shelf compared to the normal packaging cost. Shelves have a unit variable cost of $27 with fixed costs of $350,000. Because the shelves don’t require packaging, the unit variable costs for the special order will drop from $27 per shelf to $25.50 per shelf. Shelby has enough idle capacity to accept the contract. What is the minimum price per shelf that Shelby should accept for this special order?
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Shelby Industries has a capacity to produce 45,000 oak shelves per year and is currently selling 40,000 shelves for $32 each. Martin Hardwoods has approached Shelby about buying 1,000 shelves for a new project and is willing to pay $25 each. The shelves can be packaged in bulk; this saves Shelby $1.40 per shelf compared to the normal packaging cost. Shelves have a unit variable cost of $26 with fixed costs of $350,000. Because the shelves don’t require packaging, the unit variable costs for the special order will drop from $26 per shelf to $24.60 per shelf. Shelby has enough idle capacity to accept the contract. What is the minimum price per shelf that Shelby should accept for this special order?
4. Shelby Industries has a capacity to produce 45,000 oak shelves per year and is currently selling 40,000 shelves for $32 each. Martin Hardwoods has approached Shelby about buying 1,200 shelves for a new project and is willing to pay $26 each. The shelves can be packaged in bulk; this saves Shelby $1.50 per shelf compared to the normal packaging cost. Shelves have a unit variable cost of $27 with fixed costs of $350,000. Because the shelves don’t require packaging, the unit variable costs for the special order will drop from $27 per shelf to $25.50 per shelf. Shelby has enough idle capacity to accept the contract.
PLEASE NOTE: All dollar amounts are rounded to whole dollars, except for per shelf, which are rounded to two decimal places. All dollars are shown with "$" and commas as needed (i.e. $12,345).
When negotiating the price:
What is the minimum price per shelf that Shelby should accept for this special order? per shelf.
If accepted, what are the total sales?
The company sells bikes for $700.
The company currently sells 8,500, but has the capacity to produce 20,000.
It costs $375 to produce the bikes.
Of this cost $250 is variable cost and $125 is fixed cost.
They have received an offer from a potential customer that wants to purchase 1,000 bikes at $400 per bike.
However, this would also cause an incurrence of an additional $50,000 in fixed cost.
No other cost would change if this offer is accepted.
Which costs are irrelevant?
Which costs are relevant?
How much additional revenue would be earned if they accept the offer?
How much additional cost would be incurred if they accept the offer?
How much additional profit would be incurred if they accept the offer?
Should the company accept the offer?
If the company will only accept special orders if they make a profit of $10,000, would they accept this special offer?
Chapter 10 Solutions
Principles of Accounting Volume 2
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