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.
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.
Chapter5: Process Costing
Section: Chapter Questions
Problem 2PB: The following product costs are available for Kellee Company on the production of eyeglass frames:...
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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.
![Table 6: Production Costs
[Jadual 6: Kos-kos Pengeluaran]
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.
[Tiada belanja jualan dan pentadbiran berubah akan dikaitkan dengan tempahan.]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F764bc6f6-61bb-4582-b817-f49196045f74%2Ff316008e-6767-4b1e-87b6-3fee0d6cf0d4%2Fputjd6_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Table 6: Production Costs
[Jadual 6: Kos-kos Pengeluaran]
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.
[Tiada belanja jualan dan pentadbiran berubah akan dikaitkan dengan tempahan.]
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