Question

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?

Answer 1

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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