In: Accounting
Special Order
Total cost data follow for Glendale Manufacturing Company, which has a normal capacity per period of 8,000 units of product that sell for $60 each. For the foreseeable future, regular sales volume should continue to equal normal capacity.
Direct material | $100,800 | |||
Direct labor | 62,400 | |||
Variable manufacturing overhead | 46,800 | |||
Fixed manufacturing overhead (Note 1) | 38,400 | |||
Selling expense (Note 2) | 35,200 | |||
Administrative expense (fixed) | 15,000 | |||
$298,600 |
Notes:
1. Beyond normal capacity, fixed overhead costs increase $1,800 for each 500 units or fraction thereof until a maximum capacity of 10,000 units is reached.
2. Selling expenses consist of a 6% sales commission and shipping costs of 80 cents per unit. Glendale pays only three-fourths of the regular sales commission on sales totaling 501 to 1,000 units and only two-thirds the regular commission on sales totaling 1,000 units or more.
Glendale’s sales manager has received a special order for 1,200 units from a large discount chain at a price of $36 each, F.O.B. factory. The controller’s office has furnished the following additional cost data related to the special order:
1. Changes in the product’s design will reduce direct material costs $1.50 per unit.
2. Special processing will add 20% to the per-unit direct labor costs.
3. Variable overhead will continue at the same proportion of direct labor costs.
4. Other costs should not be affected.
a. Present an analysis supporting a decision to accept or reject the special order. (Round computations to the nearest cent.)
Differential Analysis | ||
---|---|---|
Per Unit | Total | |
Differential revenue | ||
Differential costs | ||
Direct material | ||
Direct labor | ||
Variable manufacturing overhead | ||
Selling: | ||
Commission | ||
Shipping (F.O.B. factory terms) | ||
Total variable cost | ||
Contribution margin from special order | ||
Fixed cost increment: | ||
Extra cost | ||
Profit on special order |
b. What is the lowest price Glendale could receive and still make a profit of $3,600 before income taxes on the special order?
Round answer to two decimal places, if applicable.
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