Chapter 7, Problem 7.31C

1.

To determine

Introduction: The difference in costs between the variable alternative is used to calculate financial advantage and disadvantage.

To calculate: The lowest price that W could bid for the order and still cover its incremental manufacturing cost.

Answer to Problem 7.31C

The relevant cost of special order is $23,200.

Explanation of Solution

Relevant cost of W for the one-time special order of 20,000 pounds

Particular	Amount
AG-5   $300poundperlot\times 20lots=6,000pound$ Substitute of BH-3 on one for one basis to its total 3500 pounds if BH-3 is not in this order, it will be salvaged for $600	3,000
The remaining 2500 pound be AG-5 at a cost of $1.20 per pound	4,200
KL-2   $200poundperlot\times 20lots=4,000poundat\$1.05perpounds$
CW-7   $150poundperlot\times 20lots=3,000poundat\$1.35perpounds$	4,050
DF—6   $175poundperlot\times 20lots=3,500pound.$ use 3000 pound in inventory at $0.60 per pound (40.70 market price-$0.10 handling charge) And purchase the remaining 500 pound at $0.70 per pound	2,150
Total direct material cost	14,000

The direct material cost is $14,000.

  $25DDLHsperlot\times 20lots=500DLHsa$

Particular	Amount $
$400DHLs\times \$14perDHL$	5600
$100DHLs\times \$21perDHL$	2100
Total Direct labor cost	7700

Hence the direct labor cost is $7,700

Variable overhead cost:

  $\begin{array}{l}\mathrm{var}iable\cos tofthespecialorder=directmaterial\cos t+Directlabor\cos t+\mathrm{var}iableoverhead\\ =\$14,000+\$7700+\$1500\\ =\$23,200\end{array}$

Thus the relevant cost of special order is $23,200

2.

To determine

Introduction: The difference in costs between the variable alternative is used to calculate financial advantage and disadvantage.

The price that W should quote Z for each 20,000 pound lot of the new compound

Answer to Problem 7.31C

The selling price is $44,800

Explanation of Solution

Selling price:

Particular	Amount $
AG-5 ( $6000pound\times \$1.20perpound$)	7200
KL-2 ( $4000pound\times \$1.05perpound$)	4200
CW-7 ( $3000pound\times \$1.35perpound$)	4050
DF-6 ( $3500pound\times \$0.70perpound$)	2450
Total direct material cost	17900

The direct material cost is $17,900.

Particular	Amount in $
Regular time ( $450DHL\times \$14perDHL$)	6300
Overtime premium   $50DHL\times \$21perDHL$	1050
Total direct labor cost	7350

Manufacturing overhead cost:

  $\begin{array}{l}manufacturingoverhead\cos t=Totaldirectlabourhour\times Costperdirectlaborhours\\ =500\times 13.50\\ =\$6,750\end{array}$

The manufacturing overhead cost is $6,750

  $\begin{array}{l}manufacturing\cos t=directmatrerial\cos t+directlabor\cos t+manufacturingoverhead\cos t\\ =17,900+7,350+6,750\\ =\$32,000\end{array}$

Particulars	Amount $
Full manufacturing cost	32,000
Markup	12,800
Selling price (full manufacturing cost plus markup)	44,800

Thus the selling price is $44,800