Tania Company manufactures watches. A national sporting goods chain recently submitted a special order for 4,000 sport watches. Tania was not operating at capacity and could use the extra business. Unfortunately, the order's offering price of RM17 per watch was below the cost to produce the watches. The controller did not agree to take a loss on the deal. However, the personnel manager argued in favor of accepting the order even though a loss would be incurred: it would avoid the problems of layoff and would help maintain the community image of the company. The following information is the full cost to produce a sport watch: Table 6: Production Costs Details Direct materials Direct labor Variable overhead Fixed overhead Total Unit Cost RM 6.50 5.00 3.25 2.50 17.25 No variable selling or administrative expenses would be associated with the order.

Tania Company manufactures watches. A national sporting goods chain recently submitted a special order for 4,000 sport watches. Tania was not operating at capacity and could use the extra business. Unfortunately, the order's offering price of RM17 per watch was below the cost to produce the watches. The controller did not agree to take a loss on the deal. However, the personnel manager argued in favor of accepting the order even though a loss would be incurred: it would avoid the problems of layoff and would help maintain the community image of the company. The following information is the full cost to produce a sport watch: Table 6: Production Costs Details Direct materials Direct labor Variable overhead Fixed overhead Total Unit Cost RM 6.50 5.00 3.25 2.50 17.25 No variable selling or administrative expenses would be associated with the order.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter17: Activity Resource Usage Model And Tactical Decision Making

Section: Chapter Questions

Problem 8E: Feinan Sports, Inc., manufactures sporting equipment, including weight-lifting gloves. A national...

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Feinan Sports, Inc., manufactures sporting equipment, including weight-lifting gloves. A national sporting goods chain recently submitted a special order for 4,600 pairs of weight-lifting gloves. Feinan Sports was not operating at capacity and could use the extra business. Unfortunately, the order’s offering price of $12.80 per pair was below the cost to produce them. The controller was opposed to taking a loss on the deal. However, the personnel manager argued in favor of accepting the order even though a loss would be incurred; it would avoid the problem of layoffs and would help maintain the community image of the company. The full cost to produce a pair of weight-lifting gloves is presented below. Direct materials $ 7.50Direct labor 3.90Variable overhead 1.60Fixed overhead 3.10Total $16.10 No variable selling or administrative expenses would be associated with the order. Non-unit- level activity costs are a small percentage of total costs and are therefore not considered.…
Tania Company manufactures watches. A national sporting goods chain recentlysubmitted a special order for 4,000 sport watches. Tania was not operating at capacityand could use the extra business. Unfortunately, the order’s offering price of RM17 perwatch was below the cost to produce the watches. The controller did not agree to take aloss on the deal. However, the personnel manager argued in favor of accepting theorder even though a loss would be incurred: it would avoid the problems of layoff andwould help maintain the community image of the company. The following informationis the full cost to produce a sport watch:Table 6: Production CostsDetails Unit CostRMDirect materials 6.50Direct labor 5.00Variable overhead 3.25Fixed overhead 2.50Total 17.25 List the relevant costs of the two alternatives of the special order. (ii) Propose whether operating income increase or decrease if the order is accepted
Tania Company manufactures watches. A national sporting goods chain recently submitted a special order for 4,000 sport watches. Tania was not operating at capacity and could use the extra business. Unfortunately, the order’s offering price of RM17 per watch was below the cost to produce the watches. The controller did not agree to take a loss on the deal. However, the personnel manager argued in favor of accepting the order even though a loss would be incurred: it would avoid the problems of layoff and would help maintain the community image of the company. The following information is the full cost to produce a sport watch: Rewuired: i) List the relevant costs of the two alternatives of the special order. ii) Propose whether operating income increase or decrease if the order is accepted with calculation details.
Feinan Sports, Inc., manufactures sporting equipment, including weight-lifting gloves. Anational sporting goods chain recently submitted a special order for 4,000 pairs of weight-liftinggloves. Feinan Sports was not operating at capacity and could use the extra business.Unfortunately, the order’s offering price of $12.70 per pair was below the cost to produce them.The controller was opposed to taking a loss on the deal. However, the personnel manager arguedin favor of accepting the order even though a loss would be incurred; it would avoid the problemof layoffs and would help maintain the community image of the company. The full cost toproduce a pair of weight-lifting gloves is presented below.Direct materials $ 7.40Direct labor 3.80Variable overhead 1.60Fixed overhead 3.10 Total $15.90No variable selling or administrative expenses would be associated with the order. Non-unitlevel activity costs are a small percentage of total costs and are therefore not considered.Required:1. Assume…
Poullus Limited (PL), a high-tech electronics manufacturing company, is currently operating at 70% of its maximum capacity. A new customer in Lesotho has asked PL to provide a special order for 200 virtual reality headsets at R2,500 per unit. The potential customer is not a current customer of PL, but the directors of PL are keen to try and win the contract as they believe that this may lead to more contracts in the future from Lesotho. As a result, they intend pricing the contract using relevant costs. 800 kilograms of material B will be required. This material will have to be purchased for the contract because it is not otherwise used by PL. The minimum order quantity from the supplier is 1 000 kilograms at a cost of R180 per kilogram. PL does not expect to have any use for any of this material that remains after this contract is completed.
Poullus Limited (PL), a high-tech electronics manufacturing company, is currently operating at 70% of its maximum capacity. A new customer in Lesotho has asked PL to provide a special order for 200 virtual reality headsets at R2,500 per unit. The potential customer is not a current customer of PL, but the directors of PL are keen to try and win the contract as they believe that this may lead to more contracts in the future from Lesotho. As a result, they intend pricing the contract using relevant costs.The following information has been obtained from a four-hour meeting that the Production Manager of PL had with the potential customer:1. 400 kilograms of material A will be required. This is a material that is regularly usedby PL and there are 700 kilograms currently in inventory. These were bought at a cost of R250 per kilogram. They have a resale value of R220 per kilogram and their current replacement cost is R260 per kilogram.2. 800 kilograms of material B will be required. This…
Lidl makes a deal with SAP for a new specialised inventory software system. Once completed and installed the system is expected to deliver £750 m in savings for Lidl, but it is valueless to any other company. SAP needs to make an investment of £300 m to develop the system. They strike an initial agreement that will eventually make Lidl pay £500 m for the system. However, after the project is completed by SAP, Lidl seek to back out from the deal citing the pandemic as a reason. It insists that it will pay only £200 m for the system or the whole deal is off. What is the size/value of the hold-up problem in this example? a. -£100m. b. £300m. c. £500m. d. £200m.
Norton Industries, a manufacturer of electronic parts, has recently received an invitation to bid on a special order for 20,000 units of one of its most popular products. Norton currently manufactures 40,000 units of this product in its Loveland, Ohio, plant. The plant is operating at 50% capacity. There will be no marketing costs on the special order. The sales manager of Norton wants to set the bid at $7 per unit because she is sure that Norton will get the business at that price. Others on the executive committee of the firm object, saying that Norton would lose money on the special order at that price. Units 40,000Manufacturing CostsDirect Materials $ 90,000Direct Labor 100,000Factory Overhead 260,000*Total Manufacturing Cost $ 450,000Unit Cost…
McAfee Industries, a manufacturer of electronic parts, has recently received an invitation to bid on a special order for 20,000 units of one of its most popular products. McAfee currently manufactures 40,000 units of this product in its Boston, Massachusets, plant. The plant is operating at 50% capacity. There will be no marketing costs on the special order. The sales manager of McAfee wants to set the bid at $7 per unit because she is sure that McAfee will get the business at that price. Others on the executive committee of the firm object, saying that McAfee would lose money on the special order at that price. Table attached Required Should McAfee accept the invitation to bid? Explain What would be the impact on short- term operating income if the order is accepted at the price recommended by the sales manager? Suppose that McAfee’s distribution center at the warehouse is operating at full capacity and would need to add capacity (leasing additional warehouse) costing $6,000 for…
Diskmar has received a special order for 2,000 units of its product at a special price of $75. The product normally sells for $100 and has the following manufacturing costs:Direct material costs are $30; Direct labor costs are $20; and Variable Overhead costs are $15. Assume that Diskmar has sufficient capacity to fill the order without harming normal production and sales. a. If Diskmar accepts the order, what effect will the order have on the company's short-term profit? b. What minimum price should Diskmar charge to achieve a $25,000 incremental profit? c. Now assume Diskmar is currently operating at full capacity and cannot fill the order without harming normal production and sales. If Diskmar accepts the order, what effect will the order have on the company's short-term profit?
A manager of Burns Sporting Goods Company is considering accepting an order from an overseas customer. This customer has requested an order for 200,000 dozen golf balls at a price of $22 per dozen. The variable cost to manufacture a dozen golf balls is $18 per dozen. The full cost is $25 per dozen. Burns Sporting Goods Company plant has just enough excess capacity on the second shift to make the overseas order. Given the information, should the order be accepted or rejected? What other considerations should be discussed in the decision? Be sure to provide explanation for your answer
The company has been approached by an overseas distributor who wants to purchase 9,500 units on a special price basis. There would be no sales commission on these units. However shipping cost would be increased by 50% and variable administrative cost would be reduced by 25%. In addition a 55,700 special insurance fee would have to be paid by Whitney Company to protect the goods in transit. What unit price would have to be qouted on the 9,500 units by whitney company to allow the company to earn a profit of $14,250 on total operations? Regular business would not be affected by this special order.