Special-Order Decision Rianne Company produces a light fixture with the following unit cost: Direct materials $2 Direct labor 1 Variable overhead 3 Fixed overhead 2 Unit cost $8 The production capacity is 300,000 units per year. Because of a depressed housing market, the company expects to produce only 180,000 fixtures for the coming year. The company also has fixed selling costs totaling $500,000 per year and variable selling costs of $1 per unit sold. The fixtures normally sell for $12 each. At the beginning of the year, a customer from a geographic region outside the area normally served by the company offered to buy 100,000 fixtures for $7 each. The customer also offered to pay all transportation costs. Since there would be no sales commissions involved, this order would not have any variable selling costs. Required: 1. Conceptual Connection: Based on a quantitative (numerical) analysis, should the company accept the order? Yes , the quantitative analysis is $fill in the blank 2 in favor of accepting the special order. 2. CONCEPTUAL CONNECTION What qualitative factors might impact the decision? Assume that no other orders are expected beyond the regular business and the special order. Both 1 and 2.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Special-Order Decision
Rianne Company produces a light fixture with the following unit cost:
| Direct materials | $2 |
| Direct labor | 1 |
| Variable |
3 |
| Fixed overhead | 2 |
| Unit cost | $8 |
The production capacity is 300,000 units per year. Because of a depressed housing market, the company expects to produce only 180,000 fixtures for the coming year. The company also has fixed selling costs totaling $500,000 per year and variable selling costs of $1 per unit sold. The fixtures normally sell for $12 each.
At the beginning of the year, a customer from a geographic region outside the area normally served by the company offered to buy 100,000 fixtures for $7 each. The customer also offered to pay all transportation costs. Since there would be no sales commissions involved, this order would not have any variable selling costs.
Required:
1. Conceptual Connection: Based on a quantitative (numerical) analysis, should the company accept the order?
Yes , the quantitative analysis is $fill in the blank 2 in favor of accepting the special order.
2. CONCEPTUAL CONNECTION What qualitative factors might impact the decision? Assume that no other orders are expected beyond the regular business and the special order.
Both 1 and 2.
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