Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
16th Edition
ISBN: 9780134475585
Author: Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
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Textbook Question
Chapter 11, Problem 11.34P
Special order, short-run pricing. Diamond Corporation produces baseball bats for kids that it sells for $37 each. At capacity, the company can produce 54,000 bats a year. The costs of producing and selling 54,000 bats are as follows:
Cost per Bat | Total Costs | |
Direct materials | $14 | $ 756,000 |
Variable direct manufacturing labor | 4 | 216,000 |
Variable manufacturing |
2 | 108,000 |
Fixed manufacturing overhead | 5 | 270,000 |
Variable selling expenses | 2 | 108,000 |
Fixed selling expenses | 3 | 162,000 |
Total costs | $30 | $1,620,000 |
- 1. Suppose Diamond is currently producing and selling 44,000 bats. At this level of production and sales, its fixed costs are the same as given in the preceding table. Home Run Corporation wants to place a one-time special order for 10,000 bats at $21 each. Diamond will incur no variable selling costs for this special order. Should Diamond accept this one-time special order? Show your calculations.
- 2. Now suppose Diamond is currently producing and selling 54,000 bats. If Diamond accepts Home Run’s offer, it will have to sell 10,000 fewer bats to its regular customers. (a) On financial considerations alone, should Diamond accept this one-time special order? Show your calculations. (b) On financial considerations alone, at what price would Diamond be indifferent between accepting the special order and continuing to sell to its regular customers at $37 per bat. (c) What other factors should Diamond consider in deciding whether to accept the one-time special order?
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Special order, short-run pricing. Diamond Corporation produces baseball bats for kids that it sells for $37 each. At capacity, the company can produce 54,000 bats a year. The costs of producing and selling 54,000 bats are as follows:
Cost per Bat Total Costs
Direct materials $14 $ 756,000
Variable direct manufacturing labour 4 216,000
Variable manufacturing overhead 2 108,000
Fixed manufacturing overhead 5 270,000
Variable selling expenses 2…
Hitter Corporation produces baseball bats for kids that it sells for $36 each. At capacity, the company can produce 56,000 bats a year. The costs of producing and selling
56,000 bats are as follows:
E (Click to view the costs.)
Read the requirements
Requirement 1. Suppose Hitter is currently producing and selling 42,000 bats. At this level of production and sales, its fixed costs are the same as given in the preceding
table. Mantle Corporation wants to place a one-time special order for 14,000 bats at $21 each. Hitter will incur no variable selling costs for this special order. Should
Hitter accept this one-time special order? Show your calculations.
Determine the effect on operating income if the order is accepted. (Enter decreases in operating income with parentheses or a minus sign.)
Increase (decrease) in operating income if order is accepted
Hitter should
Mantle's special order because it
operating income by S
Comfort Ride manufactures seats for airplanes. The company has the capacity to produce 100,000 seats per year, but currently produces and sells 75,000 seats per
year. The following information relates to current production of seats:
Sale price per unit
$430
Variable costs per unit:
Manufacturing
Marketing and administrative
$260
$70
Total fixed costs:
Manufacturing
Marketing and administrative
$760,000
$240,000
If a special sales order is accepted for 4,400 seats at a price of $345 per unit, fixed costs remain unchanged, and no variable marketing and administrative costs will
be incurred for this order, how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order.)
O A. Increase by $374,000
B. Decrease by $374,000
C. Increase by $2,662,000
D. Increase by $66,000
Chapter 11 Solutions
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
Ch. 11 - Prob. 11.1QCh. 11 - Define relevant costs. Why are historical costs...Ch. 11 - All future costs are relevant. Do you agree? Why?Ch. 11 - Distinguish between quantitative and qualitative...Ch. 11 - Describe two potential problems that should be...Ch. 11 - Variable costs are always relevant, and fixed...Ch. 11 - A component part should be purchased whenever the...Ch. 11 - Prob. 11.8QCh. 11 - Managers should always buy inventory in quantities...Ch. 11 - Management should always maximize sales of the...
Ch. 11 - Prob. 11.11QCh. 11 - Cost written off as depreciation on equipment...Ch. 11 - Managers will always choose the alternative that...Ch. 11 - Prob. 11.14QCh. 11 - Prob. 11.15QCh. 11 - Qualitative and quantitative factors. Which of the...Ch. 11 - Special order, opportunity cost. Chade Corp. is...Ch. 11 - Prob. 11.18MCQCh. 11 - Keep or drop a business segment. Lees Corp. is...Ch. 11 - Relevant costs. Ace Cleaning Service is...Ch. 11 - Disposal of assets. Answer the following...Ch. 11 - Relevant and irrelevant costs. Answer the...Ch. 11 - Multiple choice. (CPA) Choose the best answer. 1....Ch. 11 - Special order, activity-based costing. (CMA,...Ch. 11 - Make versus buy, activity-based costing. The...Ch. 11 - Inventory decision, opportunity costs. Best Trim,...Ch. 11 - Relevant costs, contribution margin, product...Ch. 11 - Selection of most profitable product. Body Image,...Ch. 11 - Theory of constraints, throughput margin, relevant...Ch. 11 - Closing and opening stores. Sanchez Corporation...Ch. 11 - Prob. 11.31ECh. 11 - Relevance of equipment costs. Janets Bakery is...Ch. 11 - Equipment upgrade versus replacement. (A. Spero,...Ch. 11 - Special order, short-run pricing. Diamond...Ch. 11 - Short-run pricing, capacity constraints. Fashion...Ch. 11 - International outsourcing. Riverside Clippers Corp...Ch. 11 - Relevant costs, opportunity costs. Gavin Martin,...Ch. 11 - Opportunity costs and relevant costs. Jason Wu...Ch. 11 - Opportunity costs. (H. Schaefer, adapted) The Wild...Ch. 11 - Make or buy, unknown level of volume. (A....Ch. 11 - Make versus buy, activity-based costing,...Ch. 11 - Prob. 11.42PCh. 11 - Product mix, special order. (N. Melumad, adapted)...Ch. 11 - Theory of constraints, throughput margin, and...Ch. 11 - Theory of constraints, contribution margin,...Ch. 11 - Closing down divisions. Ainsley Corporation has...Ch. 11 - Dropping a product line, selling more tours....Ch. 11 - Prob. 11.48PCh. 11 - Dropping a customer, activity-based costing,...Ch. 11 - Equipment replacement decisions and performance...
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