Blossom Inc. manufactures two electronic products, widgets and gadgets, and has a capacity of 2,700 machine hours. Prices and costs for each product are as follows: Widget Gadget Selling price per unit $267 $347 Variable costs per unit Direct materials 34 52 Other direct costs 14 29 Variable Manufacturing overhead costs* 47 61 * Variable manufacturing overhead costs are applied at a rate of $57 per machine hour. Steering Industries, a potential client, has offered $266 per unit to Blossom for 266 special units. These 266 units would incur the following production costs and time: Direct materials $10,234 Other direct costs $4,700 Machine hours 242 Assume that Blossom is actually operating at 95% of full capacity. Calculate what the opportunity cost would be if Steering’s special order were accepted. Opportunity cost $enter the opportunity cost in dollars Assume that Blossom is actually operating at 95% of full capacity, and additional machines can be rented at a cost of $36,700 to produce Steering’s special order. If the special order is accepted, calculate its effect on Blossom’s profit. Net profit from doing the special order $enter the net profit from doing the special order in dollars

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter10: Short-term Decision Making

Section: Chapter Questions

Problem 7PB: Remarkable Enterprises requires four units of part A for every unit of Al that it produces....

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Blossom Inc. manufactures two electronic products, widgets and gadgets, and has a capacity of 2,700 machine hours. Prices and costs for each product are as follows:

	Widget	Gadget
Selling price per unit	$267	$347
Variable costs per unit
Direct materials	34	52
Other direct costs	14	29
Variable Manufacturing overhead costs*	47	61

* Variable manufacturing overhead costs are applied at a rate of $57 per machine hour.

Steering Industries, a potential client, has offered $266 per unit to Blossom for 266 special units. These 266 units would incur the following production costs and time:

Direct materials		$10,234
Other direct costs		$4,700
Machine hours		242

Assume that Blossom is actually operating at 95% of full capacity. Calculate what the opportunity cost would be if Steering’s special order were accepted.

Opportunity cost

$enter the opportunity cost in dollars

Assume that Blossom is actually operating at 95% of full capacity, and additional machines can be rented at a cost of $36,700 to produce Steering’s special order. If the special order is accepted, calculate its effect on Blossom’s profit.

Net profit from doing the special order

$enter the net profit from doing the special order in dollars

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