Question

. Belton Concrete Company pours concrete slabs for single-family dwellings. Clint construction Company, which operates outside Belton’s normal sales territory, asks Belton to pour 200 slabs for Clint’s new development of homes. Belton has the capacity to build 2,400 slabs and is presently working on 2,000 of them. Clint explains that she is willing to pay only $2,200 per slab.

Belton’s costs when it produces 1,500 units are given as follows:

Direct Material Cost                                         $ 2.400.000

Direct Labor                                                       1.200.000

Facility Level Manufacturing Overhead                 600.000

            Belton estimates 5% increase in “Facility Level Manufacturing Overhead” if it accepts the special order.

Required: Should Belton accept or reject the special order to pour 200 slabs for $2,000 each? Support your answer with appropriate computations.

Answer 1

Particulars	Per unit	Total
Order quantity		200
Selling price	$       2,200.00	$          440,000
Costs:
Direct materials	$     (1,600.00)	$        (320,000)
Direct labor	(800.00)	$        (160,000)
Overhead increase		$           (30,000)
		$                     -
Total costs		$        (510,000)
Net benefit		$           (70,000)

When selling price is 2,200 it should not be accepted.

Particulars	Per unit	Total
Order quantity		200
Selling price	$       2,000.00	$          400,000
Costs:
Direct materials	$     (1,600.00)	$        (320,000)
Direct labor	(800.00)	$        (160,000)
Overhead increase		$           (30,000)
		$                     -
Total costs		$        (510,000)
Net benefit		$        (110,000)

Should not accept oder when price is 2,000.