Kantrovitz Company is a manufacturer of industrial components. One of its products, AP110, is used as a subcomponent in appliance manufacturing. This product has the following information per unit: Selling price $150.00 Costs: Direct material $20.00 Direct labor 15.00 Variable manufacturing overhead 12.00 Fixed manufacturing overhead 30.00 Shipping and handling 3.00 Fixed selling and administrative 10.00 Total per-unit cost $90.00 a. Kantrovitz has received a special, one-time order for 1,600 AP110 parts. Assuming Kantrovitz has excess capacity, what is the minimum price that is acceptable for beginning negotiations on this order? Answer: $50 d. Referring to (a), Kantrovitz has received a special, one-time order for 1,600 AP110 parts. Assume that Kantrovitz is operating at full capacity, and that the contribution of the output would be displaced by the one-time special order. Using the original data, compute the minimum acceptable selling price for this order.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Relevant costs; special order pricing
Kantrovitz Company is a manufacturer of industrial components. One of its products, AP110, is used as a subcomponent in appliance manufacturing. This product has the following information per unit:
| Selling price | $150.00 |
| Costs: | |
| Direct material | $20.00 |
| Direct labor | 15.00 |
| Variable manufacturing |
12.00 |
| Fixed manufacturing overhead | 30.00 |
| Shipping and handling | 3.00 |
| Fixed selling and administrative | 10.00 |
| Total per-unit cost | $90.00 |
a. Kantrovitz has received a special, one-time order for 1,600 AP110 parts. Assuming Kantrovitz has excess capacity, what is the minimum price that is acceptable for beginning negotiations on this order?
Answer: $50
d. Referring to (a), Kantrovitz has received a special, one-time order for 1,600 AP110 parts. Assume that Kantrovitz is operating at full capacity, and that the contribution of the output would be displaced by the one-time special order. Using the original data, compute the minimum acceptable selling price for this order.
For the purpose of finding out minimim price for special order, only relevant costs are to be considered. Relevant costs are generally includes varaible costs but excludes variable costs.
Given no excess capacity, the price must cover the incremental costs and opportunity cost.
Opportunity cost is the benefit of the next best alternative use of scarce resources. Because acceptance of the special order would cause the company to forgo a contribution margin of existing order.
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