Question

In: Accounting

Otibi Company produces light furniture at a unit cost of $60 which includes direct materials $20,...

  1. Otibi Company produces light furniture at a unit cost of $60 which includes direct materials $20, direct labour $12, variable overhead $18 and fixed overhead $10. Despite Otobi’s production capacity of 100,000 per year, it has a plan to produce only 60,000 units in the coming year. The company has fixed selling costs of $200,000 per year. A piece of furniture is usually sold at a price of $80.

At the beginning of the year, a customer from a geographic region outside the area normally served by the company offered to buy 20,000 pieces of furniture for $52 each. The customer offered to pay all transportation costs of $5,000. Since there would be no sales commission, this order would not have any variable selling costs.   

Required:

  1. Based on quantitative analysis, explain whether Otobi will have sufficient benefit to accept the order?
  2. What qualitative factors might affect the decision, assuming no other orders are expected beyond the regular business and the special order.

Solutions

Expert Solution

ekkarill92 answered 2 years ago
Next > < Previous

Related Solutions

Standard Direct Materials Cost per Unit Roanoke Company produces chocolate bars. The primary materials used in...
Standard Direct Materials Cost per Unit Roanoke Company produces chocolate bars. The primary materials used in producing chocolate bars are cocoa, sugar, and milk. The standard costs for a batch of chocolate (1,757 bars) are as follows: Ingredient Quantity Price Cocoa 450 lbs. $0.40 per lb. Sugar 120 lbs. $0.60 per lb. Milk 90 gal. $1.30 per gal. Determine the standard direct materials cost per bar of chocolate. If required, round to the nearest cent. $per bar
The standard cost of product 777 includes 2.70 units of direct materials at $5.80 per unit....
The standard cost of product 777 includes 2.70 units of direct materials at $5.80 per unit. During August, the company bought 28,500 units of materials at $5.90 and used those materials to produce 10,800 units. Compute the total, price, and quantity variances for materials. Total materials variance $                                                           Neither favorable nor unfavorableFavorableUnfavorable Materials price variance $               ...
The standard cost of product 777 includes 2.40 units of direct materials at $6.80 per unit....
The standard cost of product 777 includes 2.40 units of direct materials at $6.80 per unit. During August, the company bought 29,300 units of materials at $7.05 and used those materials to produce 12,400 units. Compute the total, price, and quantity variances for materials. Total materials variance $                                                           FavorableNeither favorable nor unfavorableUnfavorable Materials price variance $               ...
Special Order Decision Robin Company produces a light-weight travel raincoat with the following unit cost: Direct...
Special Order Decision Robin Company produces a light-weight travel raincoat with the following unit cost: Direct materials                          P4.00 Direct labor                                  P1.00 Variable overhead                     P1.75 Fixed overhead                          P2.00      Unit cost                                 P8.75       While production capacity is 200,000 units per year, Robin expects to produce only 170,000 raincoats for the coming year. The fixed selling costs total P85,000 per year, and variable selling costs are P0.50 per unit sold. The raincoats normally sell for P12 each.       At the...
Variable Cost Per Unit: Manufacturing: Direct Materials = $20 Direct Labor = $12 Variable Manufacturing Overhead...
Variable Cost Per Unit: Manufacturing: Direct Materials = $20 Direct Labor = $12 Variable Manufacturing Overhead = $4 Variable Selling and Administrative = $2 Fixed costs per year: Fixed manufacturing overhead = $960,000 Fixed selling and administrative expenses = $240,000 During its first year of Operations, produced 60,000 units and sold 60,000 units. During it's second year of operations, it produced 75,000 and sold 50,000 units. In its third year, it produced 40,000 units and sold 65,000 units. The selling...
Panther Company had the following historical accounting data per unit: Direct materials $60 Direct labor 30...
Panther Company had the following historical accounting data per unit: Direct materials $60 Direct labor 30 Variable overhead 15 Fixed overhead 24 Variable selling expenses 45 Fixed selling expenses 9 The units are normally transferred internally from Division A to Division B. The units also may be sold externally for $210 per unit. The minimum profit level accepted by the company is a markup of 30 percent. There were no beginning or ending inventories. If the negotiated price is used,...
Suppose that Larimer Company sells a product for $20. Unit costs are as follows: Direct materials...
Suppose that Larimer Company sells a product for $20. Unit costs are as follows: Direct materials $2.10 Direct labor 1.25 Variable factory overhead 2.00 Variable selling and administrative expense 1.05 Total fixed factory overhead is $56,590 per year, and total fixed selling and administrative expense is $38,610. Required: 1. Calculate the variable cost per unit and the contribution margin per unit. 2. Calculate the contribution margin ratio and the variable cost ratio. 3. Calculate the break-even units. 4. Prepare a...
Portsmouth Company makes upholstered furniture. Its only variable cost is direct materials. The demand for the...
Portsmouth Company makes upholstered furniture. Its only variable cost is direct materials. The demand for the company's products far exceeds its manufacturing capacity. The bottleneck (or constriant) in the production process is upholstery labor-hours. Information concerning three of Portsmouth's upholstered chairs appears below: Recliner Sofa Love Seat Selling price per unit $ 1,426 $ 1,690 $ 1,310 Variable cost per unit $ 850 $ 1,250 $ 950 Upholstery labor-hours per unit 9 hours 11 hours 4 hours Required: 1. Portsmouth...
Portsmouth Company makes upholstered furniture. Its only variable cost is direct materials. The demand for the...
Portsmouth Company makes upholstered furniture. Its only variable cost is direct materials. The demand for the company's products far exceeds its manufacturing capacity. The bottleneck (or constraint) in the production process is upholstery labor-hours. Information concerning three of Portsmouth's upholstered chairs appears below: Recliner Sofa Love Seat Selling price per unit $ 1,078 $ 2,060 $ 1,525 Variable cost per unit $ 700 $ 1,400 $ 1,100 Upholstery labor-hours per unit 7 hours 12 hours 5 hours Required: 1. Portsmouth...
Portsmouth Company makes upholstered furniture. Its only variable cost is direct materials. The demand for the...
Portsmouth Company makes upholstered furniture. Its only variable cost is direct materials. The demand for the company's products far exceeds its manufacturing capacity. The bottleneck (or constraint) in the production process is upholstery labor-hours. Information concerning three of Portsmouth's upholstered chairs appears below: Recliner Sofa Love Seat Selling price per unit $ 1,180 $ 2,000 $ 1,425 Variable cost per unit $ 700 $ 1,350 $ 1,050 Upholstery labor-hours per unit 8 hours 13 hours 5 hours Required: 1. Portsmouth...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT