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Special order For The Ages Inc. produces solid-oak umbrella stands. Each stand is handmade and hand finished using the finest materials available. The firm has been operating at capacity (3,600 stands per year) for the past three years. Based on this capacity of operations, the firm's costs per stand are as follows: Direct material Direct labor $50 40 Variable overhead Fixed overhead Total 10 30 $130 All selling and administrative expenses incurred by the firm are fixed. The average selling price of stands is $230. Recently, a large retailer approached Bill Wood, the president of For the Ages, about supplying 5 special stands to give as gifts to CEOs of key suppliers. Wood estimates that the following per-unit costs would be incurred to make the 5 stands: Direct material Direct labor $250 350 Variable overhead 90 Total direct costs $690 To accept the special order, the firm would have to sacrifice production of 36 regular units. a. Identify the total relevant cost that Wood should consider in deciding whether to accept the special order. $ b. Assume the retailer offers to pay For The Ages a total of $6,840 for the 5 stands. How would accepting this offer affect For The Ages' pre-tax income? Note: Do not use a negative sign with your answer. Accepting the offer would result in an

Special order For The Ages Inc. produces solid-oak umbrella stands. Each stand is handmade and hand finished using the finest materials available. The firm has been operating at capacity (3,600 stands per year) for the past three years. Based on this capacity of operations, the firm's costs per stand are as follows: Direct material Direct labor $50 40 Variable overhead Fixed overhead Total 10 30 $130 All selling and administrative expenses incurred by the firm are fixed. The average selling price of stands is $230. Recently, a large retailer approached Bill Wood, the president of For the Ages, about supplying 5 special stands to give as gifts to CEOs of key suppliers. Wood estimates that the following per-unit costs would be incurred to make the 5 stands: Direct material Direct labor $250 350 Variable overhead 90 Total direct costs $690 To accept the special order, the firm would have to sacrifice production of 36 regular units. a. Identify the total relevant cost that Wood should consider in deciding whether to accept the special order. $ b. Assume the retailer offers to pay For The Ages a total of $6,840 for the 5 stands. How would accepting this offer affect For The Ages' pre-tax income? Note: Do not use a negative sign with your answer. Accepting the offer would result in an

Principles of Accounting Volume 2
Principles of Accounting Volume 2
19th Edition
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax
Chapter5: Process Costing
Section: Chapter Questions
Problem 1PB: The following product costs are available for Stellis Company on the production of erasers: direct...
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Special order For The Ages Inc. produces solid-oak umbrella stands. Each stand is handmade and hand finished using the finest materials available. The firm has been operating at capacity (3,600 stands per year) for the past three years. Based on this capacity of operations, the firm's costs per stand are as follows: Direct material Direct labor $50 40 10 Variable overhead Fixed overhead Total 30 $130 All selling and administrative expenses incurred by the firm are fixed. The average selling price of stands is $230. Recently, a large retailer approached Bill Wood, the president of For the Ages, about supplying 5 special stands to give as gifts to CEOs of key suppliers. Wood estimates that the following per-unit costs would be incurred to make the 5 stands: Direct material Direct labor $250 350 Variable overhead 90 Total direct costs $690 To accept the special order, the firm would have to sacrifice production of 36 regular units. a. Identify the total relevant cost that Wood should consider in deciding whether to accept the special order. $ b. Assume the retailer offers to pay For The Ages a total of $6,840 for the 5 stands. How would accepting this offer affect For The Ages' pre-tax income? Note: Do not use a negative sign with your answer. Accepting the offer would result in an
Transcribed Image Text:Special order For The Ages Inc. produces solid-oak umbrella stands. Each stand is handmade and hand finished using the finest materials available. The firm has been operating at capacity (3,600 stands per year) for the past three years. Based on this capacity of operations, the firm's costs per stand are as follows: Direct material Direct labor $50 40 10 Variable overhead Fixed overhead Total 30 $130 All selling and administrative expenses incurred by the firm are fixed. The average selling price of stands is $230. Recently, a large retailer approached Bill Wood, the president of For the Ages, about supplying 5 special stands to give as gifts to CEOs of key suppliers. Wood estimates that the following per-unit costs would be incurred to make the 5 stands: Direct material Direct labor $250 350 Variable overhead 90 Total direct costs $690 To accept the special order, the firm would have to sacrifice production of 36 regular units. a. Identify the total relevant cost that Wood should consider in deciding whether to accept the special order. $ b. Assume the retailer offers to pay For The Ages a total of $6,840 for the 5 stands. How would accepting this offer affect For The Ages' pre-tax income? Note: Do not use a negative sign with your answer. Accepting the offer would result in an
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