88. Figure 17-2
Wannabee Company manufactures a product with the following costs per unit at the expected production level
of 84,000 units:
Direct materials
$12
Direct labor
36
Variable manufacturing overhead
18
Fixed manufacturing overhead
24
The company has the capacity to produce 90,000 units. The product regularly sells for $120.
Refer to Figure 17-2. If a wholesaler offered to buy 4,500 units for $100 each, the effect of the special order on income would be a
89. A decision that focuses on whether a specially priced order should be accepted or rejected is a
90. Firms may be asked to accept a special order of their product for a reduced price if
91. The following information relates to a product produced by Malkovich Company:
Direct materials
$24
Direct labor
15
Variable overhead
30
Fixed overhead
18
Unit cost
$87
Fixed selling costs are $500,000 per year, and variable selling costs are $12 per unit sold. Although production capacity is 600,000 units per year, the
company expects to produce only 400,000 units next year. The product normally sells for $120 each. A customer has offered to buy 60,000 units for
$90 each.
The incremental cost per unit associated with the special order is
92. The following information relates to a product produced by Malkovich Company:
Direct materials
$24
Direct labor
15
Variable overhead
30
Fixed overhead
18
Unit cost
$87
Fixed selling costs are $500,000 per year, and variable selling costs are $12 per unit sold. Although production capacity is 600,000 units per year, the
company expects to produce only 400,000 units next year. The product normally sells for $120 each. A customer has offered to buy 60,000 units for
$90 each.
If the firm produces the special order, the effect on income would be a
93. Zildjian Corporation manufactures a single product with the following unit costs for 1,250 units:
Direct materials
$2,300
Direct labor
960
Factory overhead (30% variable)
1,800
Selling expenses (50% variable)
900
Administrative expenses (10% variable)
840
Total per unit
$6,800
Recently, a company approached Zildjian Corporation about buying 100 units for $5,100 each. Currently, the models are sold to dealers for $7,900.
Zildjian Corporation’s capacity is sufficient to produce the extra 100 units. No additional selling expenses would be incurred on the special order.
What is the profit earned by Zildjian Corporation on the original 1,250 units?
94. Zildjian Corporation manufactures a single product with the following unit costs for 1,250 units:
Direct materials
$2,300
Direct labor
960
Factory overhead (30% variable)
1,800
Selling expenses (50% variable)
900
Administrative expenses (10% variable)
840
Total per unit
$6,800
Recently, a company approached Zildjian Corporation about buying 100 units for $5,100 each. Currently, the models are sold to dealers for $7,900.
Zildjian Corporation’s capacity is sufficient to produce the extra 100 units. No additional selling expenses would be incurred on the special order.
How much will income change if the special order is accepted?
95. Zildjian Corporation manufactures a single product with the following unit costs for 1,250 units:
Direct materials
$2,300
Direct labor
960
Factory overhead (30% variable)
1,800
Selling expenses (50% variable)
900
Administrative expenses (10% variable)
840
Total per unit
$6,800
Recently, a company approached Zildjian Corporation about buying 100 units for $5,100 each. Currently, the models are sold to dealers for $7,900.
Zildjian Corporation’s capacity is sufficient to produce the extra 100 units. No additional selling expenses would be incurred on the special order.
If Zildjian Corporation wants to increase its profit by $18,000 on the special order, what is the minimum price it should charge per unit?
96. Zildjian Corporation manufactures a single product with the following unit costs for 1,250 units:
Direct materials
$2,300
Direct labor
960
Factory overhead (30% variable)
1,800
Selling expenses (50% variable)
900
Administrative expenses (10% variable)
840
Total per unit
$6,800
Recently, a company approached Zildjian Corporation about buying 100 units for $5,100 each. Currently, the models are sold to dealers for $7,900.
Assume there is additional capacity for 60 more units and the firm has to reduce regular customer sales by 40 units in order to contract the special
order. There are selling expenses on only the sales to the regular customers. What is the net income if the special order of 100 units is accepted?
97. Noreaster Company produces a product that has a regular selling price of $360 per unit. At a typical
monthly production volume of 2,000 units, the product’s average unit cost of goods sold amounts to $270.
Included in this average is $120,000 of fixed manufacturing costs. All selling and administrative costs are fixed
and amount to $30,000 per month.
Noreaster Company has just received a special order for 1,000 units at $240 per unit. The buyer will pay
transportation, and the regular selling price will not be affected if Noreaster accepts the order.
Assuming Noreaster Company has excess capacity, the effect on profits of accepting the order would be a
98. Noreaster Company produces a product that has a regular selling price of $360 per unit. At a typical
monthly production volume of 2,000 units, the product’s average unit cost of goods sold amounts to $270.
Included in this average is $120,000 of fixed manufacturing costs. All selling and administrative costs are fixed
and amount to $30,000 per month.
Noreaster Company has just received a special order for 1,000 units at $240 per unit. The buyer will pay
transportation, and the regular selling price will not be affected if Noreaster accepts the order.
Assuming Noreaster Company is operating at capacity and accepting the order would require an offsetting
reduction in regular sales, the effect on profits of accepting the order would be a
99. If there is excess capacity, the minimum acceptable price for a special order must cover
100. If a firm is at full capacity, the minimum special order price must cover
101. Gandolph Company manufactures a product with the following costs per unit at the expected production of
30,000 units:
Direct materials
$ 4
Direct labor
12
Variable manufacturing overhead
6
Fixed manufacturing overhead
8
The company has the capacity to produce 40,000 units. The product regularly sells for $40. A wholesaler has offered to pay $32 a unit for 2,000
units.
If the firm is at capacity and the special order is accepted, the effect on operating income would be
102. Wallyworld Company manufactures a product with the following costs per unit at the expected production
level of 84,000 units:
Direct materials
$12
Direct labor
36
Variable manufacturing overhead
18
Fixed manufacturing overhead
24
The company has the capacity to produce 90,000 units. The product regularly sells for $120. A wholesaler has offered to pay $110 a unit for 7,500
units.
If the special order is accepted, the effect on operating income would be a
103. Wallyworld Company manufactures a product with the following costs per unit at the expected production
level of 84,000 units:
Direct materials
$12
Direct labor
36
Variable manufacturing overhead
18
Fixed manufacturing overhead
24
The company has the capacity to produce 90,000 units. The product regularly sells for $120.
If a wholesaler offered to buy 4,500 units for $100 each, the effect of the special order on income would be a
104. Rosario Manufacturing Company had the following unit costs:
Direct materials
$24
Direct labor
8
Variable factory overhead
10
Fixed factory overhead (allocated)
18
A one-time customer has offered to buy 2,750 units at a special price of $49 per unit. Assuming that sufficient unused production capacity exists to
produce the order and no regular customers will be affected by the order, how much additional profit (loss) will be generated by accepting the special
order?
105. Modesto Company produces CD Players for home stereo units. The CD Players are sold to retail stores for
$30. Manufacturing and other costs are as follows:
Variable costs per unit:
Fixed
costs
per
month:
Direct materials
$ 9.00
Factory overhead
$120,000
Direct labor
4.50
Selling and admin.
60,000
Factory overhead
3.00
Total
$180,000
Distribution
1.50
Total
$18.00
The variable distribution costs are for transportation to the retail stores. The current production and sales volume is 20,000 per year. Capacity is
25,000 units per year.
A San Diego wholesaler has proposed to place a special one-time order of 10,000 units at a reduced price of $24 per unit. The wholesaler would pay
all distribution costs, but there would be additional fixed selling and administrative costs of $3,000. All other information remains the same as the
original data. What is the effect on profits if the special order is accepted?
106. Yosemite Company produces Blu-Ray Players for home stereo units. The Blu-Ray Players are sold to retail
stores for $30. Manufacturing and other costs are as follows:
Variable costs per unit:
Fixed
costs
per
month:
Direct materials
$ 9.00
Factory overhead
$120,000
Direct labor
4.50
Selling and admin.
60,000
Factory overhead
3.00
Total
$180,000
Distribution
1.50
Total
$18.00
The variable distribution costs are for transportation to the retail stores. The current production and sales volume is 20,000 per year. Capacity is
25,000 units per year.
An Atlanta wholesaler has proposed to place a special one-time order for 7,000 units at a special price of $25.20 per unit. The wholesaler would pay
all distribution costs, but there would be additional fixed selling and administrative costs of $6,000. In addition, assume that overtime production is
not possible and that all other information remains the same as the original data. What is the effect on profits if the special order is accepted?
107. Menagerie Products had the following unit costs:
Direct materials
$24
Direct labor
10
Variable factory overhead
8
Fixed factory overhead (allocated)
18
A one-time customer has offered to buy 900 units at a special price of $47 per unit. Assuming that sufficient unused production capacity exists to
produce the order and no regular customers will be affected by the order, how much additional profit (loss) will be generated from the special order?
108. Albatross Products had the following unit costs:
Direct materials
$24
Direct labor
10
Variable factory overhead
8
Fixed factory overhead (allocated)
18
A one-time customer has offered to buy 2,000 units at a special price of $48 per unit. Because of capacity constraints, 1,000 units will need to be
produced during overtime. Overtime premium is $8 per unit. How much additional profit (loss) will be generated by accepting the special order?
109. Cellestial Manufacturing Company produces Products A1, B2, C3, and D4 through a joint process. The
joint costs amount to $200,000.
If Processed Further
Sales Value
Additional
Product
Units Produced
at Split-Off
Costs
Sales Value
A1
3,000
$10,000
$2,500
$15,000
B2
5,000
30,000
3,000
35,000
C3
4,000
20,000
4,000
25,000
D4
6,000
40,000
6,000
45,000
If Product B2 is processed further, profits will
110. Cellestial Manufacturing Company produces Products A1, B2, C3, and D4 through a joint process. The
joint costs amount to $200,000.
If Processed Further
Sales Value
Additional
Product
Units Produced
at Split-Off
Costs
Sales Value
A1
3,000
$10,000
$2,500
$15,000
B2
5,000
30,000
3,000
35,000
C3
4,000
20,000
4,000
25,000
D4
6,000
40,000
6,000
45,000
Which product(s) should be sold at split-off to maximize profits in the short run?
111. Davidian Company uses a joint process to produce products W, X, Y, and Z. Each product may be sold at
its split-off point or processed further. Additional processing costs of specific products are entirely variable.
Joint processing costs for a single batch of joint products are $120,000. Other relevant data are as follows:
Sales Value
Additional
Sales Value of
Product
at Split-Off
Processing Costs
Final Product
W
$ 40,000
$ 60,000
$ 80,000
X
$ 12,000
$ 4,000
$ 20,000
Y
$ 20,000
$ 32,000
$120,000
Z
$ 28,000
$ 20,000
$ 32,000
$100,000
$116,000
$252,000
Which products should Davidian process further?
112. Davidian Company uses a joint process to produce products W, X, Y, and Z. Each product may be sold at
its split-off point or processed further. Additional processing costs of specific products are entirely variable.
Joint processing costs for a single batch of joint products are $120,000. Other relevant data are as follows:
Sales Value
Additional
Sales Value of
Product
at Split-Off
Processing Costs
Final Product
W
$ 40,000
$ 60,000
$ 80,000
X
$ 12,000
$ 4,000
$ 20,000
Y
$ 20,000
$ 32,000
$120,000
Z
$ 28,000
$ 20,000
$ 32,000
$100,000
$116,000
$252,000
Processing Y further will cause profits to
113. Information about three joint products follows:
A
B
C
Anticipated production
5,000 lbs.
1,000 lbs.
2,000 lbs.
Selling price/lb. at split-off
$10
$30
$16
Additional processing costs/lb.
after split-off (all variable)
$ 6
$12
$24
Selling price/lb. after further
processing
$20
$40
$50
The cost of the joint process is $60,000. Which of the joint products should be sold at split-off?
114. Information about three joint products follows:
X
Y
Z
Anticipated production
12,000 lbs.
8,000 lbs.
7,000 lbs.
Selling price/lb. at split-off
$16
$26
$48
Additional processing costs/lb.
after split-off (all variable)
$ 8
$20
$20
Selling price/lb. after further
processing
$20
$40
$70
The cost of the joint process is $140,000. Which of the joint products should be processed further?
115. Information about three joint products follows:
X
Y
Z
Anticipated production
12,000 lbs.
8,000 lbs.
7,000 lbs.
Selling price/lb. at split-off
$16
$26
$48
Additional processing costs/lb.
after split-off (all variable)
$ 8
$20
$20
Selling price/lb. after further
processing
$20
$40
$70
The cost of the joint process is $140,000.
If the firm is currently processing all three products beyond split-off, the firm’s income would be
116. Information about three joint products follows:
X
Y
Z
Anticipated production
15,000 lbs.
10,000 lbs.
8,750 lbs.
Selling price/lb. at split-off
$16
$26
$48
Additional processing costs/lb.
after split-off (all variable)
$ 8
$20
$20
Selling price/lb. after further
processing
$20
$40
$70
The cost of the joint process is $140,000.
Assuming all of the sell now or process further decisions were correctly made, what will be the firm’s income?
117. Describe the steps in the decision-making process. What is the role of qualitative factors in tactical
decision-making?
118. What are relevant costs? How do they relate to decision making?