Problem 2 Friendly Company produces a single product. Recently, the company received a special order from a large national public corporation that wants to purchase 900 units of the company's product at $110 each. Friendly Company's usual individual orders are no more than 25 units. So, this proposed 900- unit order is much larger than their usual order. The order will not affect the selling price to regular customers. Friendly Company's income statement for the past month is as follows: Sales (1,200 units) Cost of goods sold Gross profit Selling and administrative expenses $144,000 - 108,000 $ 36,000 10,000 $ 26,000 Net income There was no beginning or ending inventories of work-in-process or finished goods. For the month presented, the company's detailed manufacturing costs were as follows: Direct materials ($20/unit) Direct labor ($32/unit) Variable manufacturing overhead ($18/unit) Fixed manufacturing overhead ($20/unit) $24,000 38,400 21,600 24,000 $108,000 $90 Total Average cost per unit Selling and administrative expenses are all fixed. Required: a. Assuming the company has sufficient productive capacity to supply the special order, prepare an analysis of the relevant costs and revenues associated with the special order. Please show your work. b. Given the analysis above, should the company accept or reject the special order? Please explain your answer, briefly. c. Suggest 3 qualitative, i.e. non-financial, issues the company should consider when deciding on providing this special order.
Problem 2 Friendly Company produces a single product. Recently, the company received a special order from a large national public corporation that wants to purchase 900 units of the company's product at $110 each. Friendly Company's usual individual orders are no more than 25 units. So, this proposed 900- unit order is much larger than their usual order. The order will not affect the selling price to regular customers. Friendly Company's income statement for the past month is as follows: Sales (1,200 units) Cost of goods sold Gross profit Selling and administrative expenses $144,000 - 108,000 $ 36,000 10,000 $ 26,000 Net income There was no beginning or ending inventories of work-in-process or finished goods. For the month presented, the company's detailed manufacturing costs were as follows: Direct materials ($20/unit) Direct labor ($32/unit) Variable manufacturing overhead ($18/unit) Fixed manufacturing overhead ($20/unit) $24,000 38,400 21,600 24,000 $108,000 $90 Total Average cost per unit Selling and administrative expenses are all fixed. Required: a. Assuming the company has sufficient productive capacity to supply the special order, prepare an analysis of the relevant costs and revenues associated with the special order. Please show your work. b. Given the analysis above, should the company accept or reject the special order? Please explain your answer, briefly. c. Suggest 3 qualitative, i.e. non-financial, issues the company should consider when deciding on providing this special order.
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter11: Differential Analysis And Product Pricing
Section: Chapter Questions
Problem 4TIF: Decision on accepting additional business A manager of Varden Sporting Goods Company is considering...
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