Dwight Furniture makes desks specially designed for small spaces, such as studio apartments and extended-stay hotels. Each desk sells for $110 (without chair). The cost of each desk follows: Materials Labor Variable overhead Fixed overhead ($208,000 per month, 13,000 units per month) Total costs per unit $36 41 6 16 $ 99 The local university is building a new dorm and asked Dwight for a special price of $90 for an order of 900 desks. Dwight's can fill the order using existing capacity without affecting total fixed costs for the month. However, because the sale would be to a state agency, Dwight would have to file specified compliance documents with the state purchasing office. Dwight's manager estimates that the time and expenses incurred by this filing will amount to $7,200 and is independent of the number of desks ordered. Dwight's manager is unsure whether to accept this order and wants your advice. Exercise 4-29 (Static) Pricing Decisions and Special Orders (LO 4-1, 2) Required: a. Prepare a schedule to show the impact of providing the special order of 900 desks on Dwight's profits in addition to the regular production and sales of 13,000 desks per month. b. Based solely on the data given, what is the lowest price per unit at which the desks could be sold to the university without reducing Dwight's profits?
Dwight Furniture makes desks specially designed for small spaces, such as studio apartments and extended-stay hotels. Each desk sells for $110 (without chair). The cost of each desk follows: Materials Labor Variable overhead Fixed overhead ($208,000 per month, 13,000 units per month) Total costs per unit $36 41 6 16 $ 99 The local university is building a new dorm and asked Dwight for a special price of $90 for an order of 900 desks. Dwight's can fill the order using existing capacity without affecting total fixed costs for the month. However, because the sale would be to a state agency, Dwight would have to file specified compliance documents with the state purchasing office. Dwight's manager estimates that the time and expenses incurred by this filing will amount to $7,200 and is independent of the number of desks ordered. Dwight's manager is unsure whether to accept this order and wants your advice. Exercise 4-29 (Static) Pricing Decisions and Special Orders (LO 4-1, 2) Required: a. Prepare a schedule to show the impact of providing the special order of 900 desks on Dwight's profits in addition to the regular production and sales of 13,000 desks per month. b. Based solely on the data given, what is the lowest price per unit at which the desks could be sold to the university without reducing Dwight's profits?
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Transcribed Image Text:Dwight Furniture makes desks specially designed for small spaces, such as studio apartments and extended-stay hotels.
Each desk sells for $110 (without chair). The cost of each desk follows:
Materials
Labor
Variable overhead
Fixed overhead ($208,000 per month, 13,000 units per month)
Total costs per unit.
The local university is building a new dorm and asked Dwight for a special price of $90 for an order of 900 desks.
Dwight's can fill the order using existing capacity without affecting total fixed costs for the month. However, because the
sale would be to a state agency, Dwight would have to file specified compliance documents with the state purchasing
office. Dwight's manager estimates that the time and expenses incurred by this filing will amount to $7,200 and is
independent of the number of desks ordered. Dwight's manager is unsure whether to accept this order and wants your
advice.
Exercise 4-29 (Static) Pricing Decisions and Special Orders (LO 4-1, 2)
Required:
a. Prepare a schedule to show the impact of providing the special order of 900 desks on Dwight's profits in addition to the regular
production and sales of 13,000 desks per month.
b. Based solely on the data given, what is the lowest price per unit at which the desks could be sold to the university without reducing
Dwight's profits?
Complete this question by entering your answers in the tabs below.
Required A Required B
Prepare a schedule to show the impact of providing the special order of 900 desks on Dwight's profits in addition to the
regular production and sales of 13,000 desks per month. (Enter your answers in thousands rounded to 1 decimal place. (i.e.,
5,400,400 should be entered as 5,400.4). Select option "higher" or "lower", keeping Status Quo as the base. Select "none" if
there is no effect.)
Sales revenue
Less variable costs:
Materials
Labor
Variable overhead
Total variable cost
Contribution margin
Less: Fixed costs
Operating profit
$36
41
6
16
$99
Status Quo
13,000 Desks
$
(Thousands of Dollars)
Alternative
13,900 Desks
0.0 $
< Required A
0.0
Difference
Required B >
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