Question

The Melville Corporation produces a single product called a Pong. Melville has the capacity to produce 60,000 Pongs each year. If Melville produces at capacity, the per unit costs to produce and sell one Pong are as follows:

Direct materials	$	15
Direct labor	$	12
Variable manufacturing overhead	$	8
Fixed manufacturing overhead	$	9
Variable selling expense	$	8
Fixed selling expense	$	3

The regular selling price for one Pong is $80. A special order has been received by Melville from Mowen Corporation to purchase 6,000 Pongs next year. If this special order is accepted, the variable selling expense will be reduced by 75%. However, Melville will have to purchase a specialized machine to engrave the Mowen name on each Pong in the special order. This machine will cost $9,000 and it will have no use after the special order is filled. The total fixed manufacturing overhead and selling expenses would be unaffected by this special order. Assume that direct labor is a variable cost.

Assume Melville anticipates selling only 50,000 units of Pong to regular customers next year. At what selling price for the 6,000 special order units would Melville be financially indifferent between accepting or rejecting the special order from Mowen?

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Kerekes Manufacturing Corporation has prepared the following overhead budget for next month.

Activity level		2,500	machine-hours
Variable overhead costs:
Supplies	$	11,250
Indirect labor		21,000
Fixed overhead costs:
Supervision		15,700
Utilities		5,900
Depreciation		6,900
Total overhead cost	$	60,750

The company's variable overhead costs are driven by machine-hours.

What would be the total budgeted overhead cost for next month if the activity level is 2,400 machine-hours rather than 2,500 machine-hours? (Round your intermediate calculations to 2 decimal places.)

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Bramble Corporation is a small wholesaler of gourmet food products. Data regarding the store's operations follow:

• Sales are budgeted at $420,000 for November, $400,000 for December, and $390,000 for January.
• Collections are expected to be 55% in the month of sale and 45% in the month following the sale.
• The cost of goods sold is 70% of sales.
• The company would like to maintain ending merchandise inventories equal to 60% of the next month's cost of goods sold. Payment for merchandise is made in the month following the purchase.
• Other monthly expenses to be paid in cash are $24,800.
• Monthly depreciation is $15,800.
• Ignore taxes.

Balance Sheet October 31
Assets
Cash	$	20,800
Accounts receivable		70,800
Merchandise inventory		176,400
Property, plant and equipment, net of $572,800 accumulated depreciation		1,094,800
Total assets	$	1,362,800
Liabilities and Stockholders' Equity
Accounts payable	$	254,800
Common stock		820,800
Retained earnings		287,200
Total liabilities and stockholders' equity	$	1,362,800

Expected cash collections in December are:

Answer 1

Problem 1 - The Melville Corporation

We need to understand that it is given in the question that the fixed manufacturing cost and Fixed selling expenses would be unaffected by this special order. Hence these fixed costs would not be considered in this decision making.

Anticipated quantity to be sold through regular channel is 50,000 Units and the special order units are 6,000 units which are within capacity. Hence, the only relevant cost which is related with the special order need to be considered in decision making.

Relevant Cost for special order
Direct material per unit	$15.00
Direct labor per unit	$12.00
Variable manufacturing overhead per unit	$8.00
Variable selling expenses per unit ($8*75% reduced)	$6.00
Relevant Cost per unit	$41.00
Plus: Machine Cost per unit of special order ($9,000 / 6,000 Units)	$1.50
Total Cost for special order per unit	$42.50

Melville would be financial indifferent between accepting or rejecting the special order from Mowen at selling price $42.50 per unit

Hope the above calculations, working and explanations are clear to you and help you to understand the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you

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