Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN: 9781305970663
Author: Don R. Hansen, Maryanne M. Mowen
Publisher: Cengage Learning
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Textbook Question
Chapter 17, Problem 8E
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.
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.
Required:
- 1. Assume that the company would accept the order only if it increased total profits. Should the company accept or reject the order? Provide supporting computations.
- 2. Suppose that Feinan Sports has negotiated with the potential customer, and has determined that it can substitute cheaper materials, reducing direct materials cost by $0.95 per unit. In addition, the company’s engineers have found a way to reduce direct labor cost by $0.50 per unit. Should the company accept or reject the order? Provide supporting computations.
- 3. Consider the personnel manager’s concerns. Discuss the merits of accepting the order even if it decreases total profits.
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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.…
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…
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.
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...
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