How do I do this? See the screenshot for (a).
Total cost data follow for Glendale Manufacturing Company, which has a normal capacity per period of 8000 unitsof product that sell for $60 each. For the foreseeable future, regular sales volume should continue to equal to normal capacity
|Variable manufacturing overhead||$46,800|
|Fixed manufacturing overhead||$38,400|
|Selling expense (note 2)||$35,200|
|Adminstrative expense (fixed)||$15,000|
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. Glendalepays only three-fourths of the regular sales commission on sales totaling 501 to 1000 units and only two-thirds the regular commission on sales totaling 1000 units or more.
Glendale's sales manager has received a special order for 1200 units from a large discount chain at a price of $36 each, FOB 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 materials 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.
b. What is the lowest price Glendale could receive and still make a a $3600 profit before income taxes on the special order?
c. What general qualitative factors should Glendale consider?
Differential analysis is an analysis conducted to decide whether an offer should be accepted or rejected. If there is a profit after conducting the analysis, the offer should be accepted. If there is a loss, the offer should be rejected.
Total variable cost= No. of units × cost per unit
= 1,200 × $28.92
Contribution margin= Total sales – variable cost
= $43,200 - $34,704
Fixed cost= $1,800 × (1,200 ÷ 500)
= $1,800 × 2.4
= $1,800 × 3
Here, 2.4 is rounded off to 3 as it is given in the question that fixed cost increases for 500 units or fraction part thereof.
The offer should be accepted, as there is a profit of $3,096.
b. Lowest sales price will be ...
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