Question

In: Accounting

4). Grill Time sells its barbecue sets for $170 each. Suppose the company incurs the following...

4). Grill Time sells its barbecue sets for $170 each. Suppose the company incurs the following average cost per barbecue set:

Direct materials $52

Direct labor 28

Variable manufacturing overhead 11

Variable selling expenses 5

Fixed manufacturing overhead* 24 Total cost $120

* $ 1,800,000 / 75,000 units

Grill Time has enough idle capacity to accept a one-time-only special order from Backyard Living, Inc. for 2,000 barbecue sets at a sales price of $130 per set. Grill Time will not incur $2 of variable selling expenses for this order.

How would accepting the order affect Grill Time's operating income?

Solutions

Expert Solution

Variable expense is an expense varies with level of units sold/produced thus it is relevant while making any decision since it results in incremental cost .

Variable cost per unit incurred in case special offer is accepted :52+28+11+(5-2)

                          = 52+28+11+3

                             = 94

Fixed cost remain constant irrespective of level of units produced /sold thus it is irrelevant while making any decision (unless any incremental cost is incurred or it is avoidable]

Incremental revenue from special offer (2000*130) 260000
less:variable cost   [94*2000] (188000)
Incremental profit /(loss) 72000

Operating income will increase by 72000 from acceptance of offer.

**since there is enough idle capacity available ,there is no loss of regular sales.

ekkarill92 answered 9 months ago
Next > < Previous

Related Solutions

a company sells eyeglasses. The company incurs a one-time fixed cost for $250,000. Each eyeglasses costs...
a company sells eyeglasses. The company incurs a one-time fixed cost for $250,000. Each eyeglasses costs $140 to produce, and sells for $160. a. Find the cost function, C, to produce x eyeglasses, in dollars. b. Find the revenue function, R, from the sales of x eyeglasses, in dollars. c. Find the break-even point, the point of intersection of the two graphs C and R. d. What does the break even point mean? e. Is this a lucrative way to...
Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it sells for...
Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it sells for $200. Data for last year’s operations follow:    Units in beginning inventory 0 Units produced 10,400 Units sold 8,100 Units in ending inventory 2,300 Variable costs per unit: Direct materials $ 60 Direct labor 20 Variable manufacturing overhead 10 Variable selling and administrative 30 Total variable cost per unit $ 120 Fixed costs: Fixed manufacturing overhead $ 170,000 Fixed selling and administrative 470,000 Total...
Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it sells for...
Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it sells for $200. Data for last year’s operations follow:    Units in beginning inventory 0 Units produced 10,300 Units sold 9,000 Units in ending inventory 1,300 Variable costs per unit: Direct materials $ 80 Direct labor 40 Variable manufacturing overhead 10 Variable selling and administrative 30 Total variable cost per unit $ 160 Fixed costs: Fixed manufacturing overhead $ 200,000 Fixed selling and administrative 20,000 Total...
Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it sells for...
Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it sells for $300. Data for last year’s operations follow: Units in beginning inventory 0 Units produced 10,000 Units sold 8,300 Units in ending inventory 1,700 Variable costs per unit: Direct materials $ 80 Direct labor 20 Variable manufacturing overhead 10 Variable selling and administrative 30 Total variable cost per unit $ 140 Fixed costs: Fixed manufacturing overhead $ 180,000 Fixed selling and administrative 1,020,000 Total fixed...
Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it sells for...
Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it sells for $300. Data for last year’s operations follow: Units in beginning inventory 0 Units produced 10,000 Units sold 8,600 Units in ending inventory 1,400 Variable costs per unit: Direct materials $ 80 Direct labor 20 Variable manufacturing overhead 10 Variable selling and administrative 30 Total variable cost per unit $ 140 Fixed costs: Fixed manufacturing overhead $ 160,000 Fixed selling and administrative 800,000 Total fixed...
Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it sells for...
Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it sells for $300. Data for last year’s operations follow:    Units in beginning inventory 0 Units produced 10,100 Units sold 8,400 Units in ending inventory 1,700 Variable costs per unit: Direct materials $ 80 Direct labor 20 Variable manufacturing overhead 10 Variable selling and administrative 30 Total variable cost per unit $ 140 Fixed costs: Fixed manufacturing overhead $ 180,000 Fixed selling and administrative 1,180,000 Total...
Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it sells for...
Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it sells for $200. Data for last year’s operations follow:    Units in beginning inventory 0 Units produced 10,400 Units sold 8,700 Units in ending inventory 1,700 Variable costs per unit: Direct materials $ 60 Direct labor 20 Variable manufacturing overhead 10 Variable selling and administrative 30 Total variable cost per unit $ 120 Fixed costs: Fixed manufacturing overhead $ 190,000 Fixed selling and administrative 490,000 Total...
Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it sells for...
Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it sells for $300. Data for last year’s operations follow:    Units in beginning inventory 0 Units produced 10,300 Units sold 8,800 Units in ending inventory 1,500 Variable costs per unit: Direct materials $ 80 Direct labor 40 Variable manufacturing overhead 10 Variable selling and administrative 30 Total variable cost per unit $ 160 Fixed costs: Fixed manufacturing overhead $ 150,000 Fixed selling and administrative 1,040,000 Total...
Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it sells for...
Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it sells for $200. Data for last year’s operations follow:    Units in beginning inventory 0 Units produced 10,400 Units sold 8,600 Units in ending inventory 1,800 Variable costs per unit: Direct materials $ 80 Direct labor 40 Variable manufacturing overhead 10 Variable selling and administrative 30 Total variable cost per unit $ 160 Fixed costs: Fixed manufacturing overhead $ 160,000 Fixed selling and administrative 140,000 Total...
Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it sells for...
Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it sells for $215. Data for last year’s operations follow: Units in beginning inventory 0 Units produced 10,100 Units sold 9,200 Units in ending inventory 900 Variable costs per unit: Direct materials $ 62 Direct labor 31 Variable manufacturing overhead 13 Variable selling and administrative 17 Total variable cost per unit $ 123 Fixed costs: Fixed manufacturing overhead $ 343,400 Fixed selling and administrative 510,000 Total fixed...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT