Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN: 9781305970663
Author: Don R. Hansen, Maryanne M. Mowen
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 17, Problem 18E
A company is considering a special order for 1,000 units to be priced at $8.90 (the normal price would be $11.50). The order would require specialized materials costing $4.00 per unit. Direct labor and variable factory overhead would cost $2.15 per unit. Fixed factory overhead is $1.20 per unit. However, the company has excess capacity, and acceptance of the order would not raise total fixed factory overhead. The warehouse, however, would have to add capacity costing $1,300. Which of the following is relevant to the special order?
- a. $11.50
- b. $1.20
- c. $7.35
- d. $8.90
Expert Solution & Answer
Trending nowThis is a popular solution!
Chapter 17 Solutions
Cornerstones of Cost Management (Cornerstones Series)
Ch. 17 - What is tactical decision making?Ch. 17 - Tactical decisions are often small-scale decisions...Ch. 17 - What is tactical cost analysis? What steps in the...Ch. 17 - What is a relevant cost? Explain why depreciation...Ch. 17 - Give an example of a future cost that is not...Ch. 17 - Prob. 7DQCh. 17 - Can direct materials ever be irrelevant in a...Ch. 17 - What role do past costs play in tactical cost...Ch. 17 - When will flexible resources be relevant to a...Ch. 17 - Prob. 11DQ
Ch. 17 - Prob. 12DQCh. 17 - Prob. 13DQCh. 17 - Prob. 14DQCh. 17 - Why would a firm ever offer a price on a product...Ch. 17 - Each year, Basu Company produces 18,000 units of a...Ch. 17 - Reshier Company makes three types of rug...Ch. 17 - Sequoia Paper Products, Inc., manufactures boxed...Ch. 17 - Betram Chemicals Company processes a number of...Ch. 17 - Prob. 5ECh. 17 - Elliott, Inc., has four salaried clerks to process...Ch. 17 - Prob. 7ECh. 17 - Feinan Sports, Inc., manufactures sporting...Ch. 17 - Wehner Company is currently manufacturing Part...Ch. 17 - Brees, Inc., a manufacturer of golf carts, has...Ch. 17 - Prob. 11ECh. 17 - Nutterco, Inc., produces two types of nut butter:...Ch. 17 - Carleigh, Inc., is a pork processor. Its plants,...Ch. 17 - Global Reach, Inc., is considering opening a new...Ch. 17 - Tony and Tina Roselli own and run TNTs Pizza...Ch. 17 - Jason Rogers works full-time for UPS and runs a...Ch. 17 - Prob. 17ECh. 17 - A company is considering a special order for 1,000...Ch. 17 - Walloon Company produced 150 defective units last...Ch. 17 - Pasha Company produced 50 defective units last...Ch. 17 - Future costs that differ across alternatives are:...Ch. 17 - Thaler Company bought 26,000 of raw materials a...Ch. 17 - Norton Products, Inc., manufactures...Ch. 17 - Prob. 24PCh. 17 - Fiorello Company manufactures two types of...Ch. 17 - St. Johns Medical Center (SJMC) has five medical...Ch. 17 - Brandy Dees recently bought Nievo Enterprises, a...Ch. 17 - Apollonia Dental Services is part of an HMO that...Ch. 17 - Pharmaco Corporation buys three chemicals that are...Ch. 17 - KarlAuto Corporation manufactures automobiles,...Ch. 17 - Morrill Company produces two different types of...Ch. 17 - Paladin Company manufactures plain-paper fax...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Oat Treats manufactures various types of cereal bars featuring oats. Simmons Cereal Company has approached Oat Treats with a proposal to sell the company its top selling oat cereal bar at a price of $27,500 for 20,000 bars. The costs shown are associated with production of 20,000 oat bars currently. The manufacturing overhead consists of $3,000 of variable costs with the balance being allocated to fixed costs. Should Oat Treats make or buy the oat bars?arrow_forwardDimitri Designs has capacity to produce 30,000 desk chairs per year and is currently selling all 30,000 for $240 each. Country Enterprises has approached Dimitri to buy 800 chairs for $210 each. Dimitris normal variable cost is $165 per chair, including $50 per unit in direct labor per chair. Dimitri can produce the special order on an overtime shift, which means that direct labor would be paid overtime at 150% of the normal pay rate. The annual fixed costs will be unaffected by the special order and the contract will not disrupt any of Dimitris other operations. What will be the impact on profits of accepting the order?arrow_forwardVariety Artisans has a bottleneck in their production that occurs within the engraving department. Arjun Naipul, the COO, is considering hiring an extra worker, whose salary will be $45,000 per year, to solve the problem. With this extra worker, the company could produce and sell 3,500 more units per year. Currently, the selling price per unit is $18 and the cost per unit is $5.85. Using the information provided, calculate the annual financial impact of hiring the extra worker.arrow_forward
- Boston Executive. Inc., produces executive limousines and currently manufactures the mini-bar inset at these costs: The company received an offer from Elite Mini-Bars to produce the insets for $2,100 per Unit and supply 1,000 mini-bars for the coming years estimated production. If the company accepts this offer and shuts down production of this part of the business, production workers and supervisors will be reassigned to other areas. Assume that for the short-term decision-making process demonstrated in this problem, the companys total labor costs (direct labor and supervisor salaries) will remain the same if the bar inserts are purchased. The specialized equipment cannot be used and has no market value. However, the space occupied by the mini bar production can be used by a different production group that will lease it for $55,000 per year. Should the company make or buy the mini-bar insert?arrow_forwardKimball Company has developed the following cost formulas: Materialusage:Ym=80X;r=0.95Laborusage(direct):Yl=20X;r=0.96Overheadactivity:Yo=350,000+100X;r=0.75Sellingactivity:Ys=50,000+10X;r=0.93 where X=Directlaborhours The company has a policy of producing on demand and keeps very little, if any, finished goods inventory (thus, units produced equals units sold). Each unit uses one direct labor hour for production. The president of Kimball Company has recently implemented a policy that any special orders will be accepted if they cover the costs that the orders cause. This policy was implemented because Kimballs industry is in a recession and the company is producing well below capacity (and expects to continue doing so for the coming year). The president is willing to accept orders that minimally cover their variable costs so that the company can keep its employees and avoid layoffs. Also, any orders above variable costs will increase overall profitability of the company. Required: 1. Compute the total unit variable cost. Suppose that Kimball has an opportunity to accept an order for 20,000 units at 220 per unit. Should Kimball accept the order? (The order would not displace any of Kimballs regular orders.) 2. Explain the significance of the coefficient of correlation measures for the cost formulas. Did these measures have a bearing on your answer in Requirement 1? Should they have a bearing? Why or why not? 3. Suppose that a multiple regression equation is developed for overhead costs: Y = 100,000 + 100X1 + 5,000X2 + 300X3, where X1 = direct labor hours, X2 = number of setups, and X3 = engineering hours. The coefficient of determination for the equation is 0.94. Assume that the order of 20,000 units requires 12 setups and 600 engineering hours. Given this new information, should the company accept the special order referred to in Requirement 1? Is there any other information about cost behavior that you would like to have? Explain.arrow_forwardRegal Executive, Inc., produces executive motor coaches and currently manufactures the cent awnings that accompany them at these costs: The company received an offer from Saied Tents to produce the awnings for $3,200 per unit and supply 1,000 awnings for the coming years estimated production. If the company accepts this offer and shuts down production of this part of the business, production workers and supervisors will be reassigned to other areas. Assume that for the short-term decision-making process demonstrated in this problem, the companys total labor costs (direct labor and supervisor salaries) will remain the same if the bar inserts are purchased. The specialized equipment cannot be used and has no market value. However, the space occupied by the awning production can be used by a different production group that will lease it for $60,000 per year. Should the company make or buy the awnings?arrow_forward
- Artisan Metalworks has a bottleneck in their production that occurs within the engraving department. Jamal Moore, the COO, is considering hiring an extra worker, whose salary will be $55,000 per year, to solve the problem. With this extra worker, the company could produce and sell 3,000 more units per year. Currently, the selling price per unit is $25 and the cost per unit is $7.85. Using the information provided, calculate the annual financial impact of hiring the extra worker.arrow_forwardBethany Company has just completed the first month of producing a new product but has not yet shipped any of this product. The product incurred variable manufacturing costs of 5,000,000, fixed manufacturing costs of 2,000,000, variable marketing costs of 1,000,000, and fixed marketing costs of 3,000,000. Under the variable costing concept, the inventory value of the new product would be: a. 5,000,000. b. 6,000,000. c. 8,000,000. d. 11,000,000.arrow_forwardMaterials used by the Instrument Division of Ziegler Inc. are currently purchased from outside suppliers at a cost of 1,350 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of 900 per unit. a. If a transfer price of 1,000 per unit is established and 75,000 units of materials are transferred, with no reduction in the Components Divisions current sales, how much would Ziegler Inc.s total operating income increase? b. How much would the Instrument Divisions operating income increase? c. How much would the Components Divisions operating income increase?arrow_forward
- Gent Designs requires three units of part A for every unit of Al that it produces. Currently, part A is made by Gent, with these per-unit costs in a month when 4.000 units were produced: Variable manufacturing overhead is applied at $1.00 per unit. The other $0.30 of overhead consists of allocated fixed costs. Gent will need 6,000 units of part A for the next years production. Cory Corporation has offered to supply 6,000 units of part A at a price of $7.00 per unit. It Gent accepts the offer, all of the variable costs and $1,200 of the fixed costs will be avoided. Should Gent Designs accept the offer from Cory Corporation?arrow_forwardRemarkable Enterprises requires four units of part A for every unit of Al that it produces. Currently, part A is made by Remarkable, with these per-unit costs in a month when 4,000 units were produced: Variable manufacturing overhead is applied at $1.60 per unit. The other $0.50 of overhead consists of allocated fixed costs. Remarkable will need 8,000 units of part A for the next years production. Altoona Corporation has offered to supply 8,000 units of part A at a price of $8.00 per unit. If Remarkable accepts the offer, all of the variable costs and $2,000 of the fixed costs will be avoided. Should Remarkable accept the offer from Altoona Corporation?arrow_forwardBrees, Inc., a manufacturer of golf carts, has just received an offer from a supplier to provide 2,600 units of a component used in its main product. The component is a track assembly that is currently produced internally. The supplier has offered to sell the track assembly for 66 per unit. Brees is currently using a traditional, unit-based costing system that assigns overhead to jobs on the basis of direct labor hours. The estimated traditional full cost of producing the track assembly is as follows: Prior to making a decision, the companys CEO commissioned a special study to see whether there would be any decrease in the fixed overhead costs. The results of the study revealed the following: 3 setups1,160 each (The setups would be avoided, and total spending could be reduced by 1,160 per setup.) One half-time inspector is needed. The company already uses part-time inspectors hired through a temporary employment agency. The yearly cost of the part-time inspectors for the track assembly operation is 12,300 and could be totally avoided if the part were purchased. Engineering work: 470 hours, 45/hour. (Although the work decreases by 470 hours, the engineer assigned to the track assembly line also spends time on other products, and there would be no reduction in his salary.) 75 fewer material moves at 30 per move. Required: 1. Ignore the special study, and determine whether the track assembly should be produced internally or purchased from the supplier. 2. Now, using the special study data, repeat the analysis. 3. Discuss the qualitative factors that would affect the decision, including strategic implications. 4. After reviewing the special study, the controller made the following remark: This study ignores the additional activity demands that purchasing would cause. For example, although the demand for inspecting the part on the production floor decreases, we may need to inspect the incoming parts in the receiving area. Will we actually save any inspection costs? Is the controller right?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning
Principles of Cost AccountingAccountingISBN:9781305087408Author:Edward J. Vanderbeck, Maria R. MitchellPublisher:Cengage Learning
Financial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub
Managerial Accounting: The Cornerstone of Busines...
Accounting
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Cengage Learning
Principles of Cost Accounting
Accounting
ISBN:9781305087408
Author:Edward J. Vanderbeck, Maria R. Mitchell
Publisher:Cengage Learning
Financial And Managerial Accounting
Accounting
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:Cengage Learning,
Job Cost Sheet - Job Cost Accounting System; Author: Accounting Instruction, Help, & How To;https://www.youtube.com/watch?v=ElD8nKNXE1I;License: Standard Youtube License