Question

In: Accounting

Benson Quilting Company makes blankets that it markets through a variety of department stores. It makes...

Benson Quilting Company makes blankets that it markets through a variety of department stores. It makes the blankets in batches of 3,000 units. Benson made 27,000 blankets during the prior accounting period. The cost of producing the blankets is summarized here.

Materials cost ($28 per unit × 27,000) $ 756,000
Labor cost ($22 per unit × 27,000) 594,000
Manufacturing supplies ($4 × 27,000) 108,000
Batch-level costs (9 batches at $6,000 per batch) 54,000
Product-level costs 220,000
Facility-level costs 280,000
Total costs $ 2,012,000
Cost per unit = $2,012,000 ÷ 27,000 = $74.52


Required

  1. Sunny Motels has offered to buy a batch of 500 blankets for $59 each. Benson’s normal selling price is $93 per unit. Calculate the relevant cost per unit for the special order. Based on the preceding quantitative data, should Benson accept the special order?

  2. Sunny offered to buy a batch of 3,000 blankets for $63 per unit, calculate the relevant cost per unit for the special order. Should Benson accept the special order?

Solutions

Expert Solution

a) For Sunny Motels order.
Cost Item Total cost No.of units Per unit cost
Material cost                 28
Labor cost                 22
Manufacturing supplies                   4
Batch - level costs                                           6,000            500                 12
Total relevant cost                 66
Price offered                 59
a) Cost per unit                   66
Should thorton accpet the order? NO
b) For Sunny Motels order.
Cost Item Total cost No.of units Per unit cost
Material cost                 28
Labor cost                 22
Manufacturing supplies                   4
Batch - level costs                                           6,000         3,000                   2
Total relevant cost                 56
Price offered                 59
b) Cost per unit                   56
Should thorton accpet the order? Yes
Note: Product level cost and facility level cost are not relevant cost.
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