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143.
Flower Co. manufactures and sells medals for winners of athletic and other events. Its
manufacturing plant has the capacity to produce 18,000 medals each month; current
monthly production is 17,100 medals. The company normally charges $88 per medal. Cost
data for the current level of production are shown below:
Variable costs:
Direct materials
$495,900
Direct labor
$324,900
Selling and
administrative
$30,780
Fixed costs:
Manufacturing
$345,420
Selling and
administrative
$164,160
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144.
Horton Corporation makes a range of products. The company's predetermined overhead
rate is $16 per direct labor-hour, which was calculated using the following budgeted data:
Variable manufacturing overhead
$75,000
Fixed manufacturing overhead
$325,000
Direct labor-hours
25,000
Management is considering a special order for 700 units of product Item 48 at $64 each.
The normal selling price of product Item 48 is $75 and the unit product cost is determined
as follows:
Direct materials
$37.00
Direct labor
18.00
Manufacturing overhead applied
16.00
Unit product cost
$71.00
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145.
Juran Company produces a single product. The cost of producing and selling a single unit
of this product at the company's normal activity level of 70,000 units per month is as
follows:
Direct materials
$26.60
Direct labor
$4.30
Variable manufacturing overhead
$1.90
Fixed manufacturing overhead
$11.10
Variable selling & administrative expense
$1.50
Fixed selling & administrative expense
$9.10
The normal selling price of the product is $56.70 per unit.
An order has been received from an overseas customer for 2,000 units to be delivered this
month at a special discounted price. This order would have no effect on the company's
normal sales and would not change the total amount of the company's fixed costs. The
variable selling and administrative expense would be $0.70 less per unit on this order than
on normal sales.
Direct labor is a variable cost in this company.
Required:
a. Suppose there is ample idle capacity to produce the units required by the overseas
customer and the special discounted price on the special order is $51.20 per unit. By how
much would this special order increase (decrease) the company's net operating income for
the month?
b. Suppose the company is already operating at capacity when the special order is
received from the overseas customer. What would be the opportunity cost of each unit
delivered to the overseas customer?
c. Suppose there is not enough idle capacity to produce all of the units for the overseas
customer and accepting the special order would require cutting back on production of 700
units for regular customers. What would be the minimum acceptable price per unit for the
special order?
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146.
Florida Enterprises produces high quality blankets sold to hotels and resorts. Blankets
must be well made because of frequent washings. Currently, Florida sells 10,000 blankets
at $60 each with the capacity to produce 12,000 blankets. Florida is considering a special
order from a hotel chain in Mexico for 1,000 blankets at a price of $45. Currently, Florida
has the following costs:
Unit Costs
$250,000
Product Level Costs
$40,000
Facility Costs
$125,000
