Grundvig Manufacturing produces several types of bolts used in aircraft. The bolts are produced in batches and grouped into three product families. Because the product families are used in different kinds of aircraft, customers also can be grouped into three categories, corresponding to the product family that they purchase. The number of units sold to each customer class is the same. The selling prices for the three product families range from $0.50 to $0.80 per unit. Historically, the costs of order entry, processing, and handling were expensed and not traced to individual customer groups. These costs are not trivial and totaled $9,000,000 for the most recent year. Recently, the company started emphasizing a cost reduction strategy with an emphasis on creating a competitive advantage.
Upon investigation, management discovered that order-filling costs were driven by the number of customer orders processed with the following cost behavior:
Step-fixed cost component: $50,000 per step (2,000 orders define a step)*
Variable cost component: $20 per order
*Grundvig currently has sufficient steps to process 200,000 orders.
The expected customer orders for the year total 200,000. The expected usage of the order-filling activity and the average size of an order by customer category follow:
As a result of cost behavior analysis, the marketing manager recommended the imposition of a charge per customer order. The charge was implemented by adding the cost per order to the price of each order (computed by using the projected ordering costs and expected orders). This ordering cost was then reduced as the size of the order increased and was eliminated as the order size reached 2,000 units. Within a short period of communicating this new price information to customers, the average order size for all three product families increased to 2,000 units.
Required:
Corporate Financial Accounting
Financial & Managerial Accounting
Accounting Information Systems
Financial And Managerial Accounting
Financial Accounting
College Accounting, Chapters 1-27
Intermediate Accounting: Reporting And Analysis
Essentials of Economics (MindTap Course List)
ECON: MICRO4 (New, Engaging Titles from 4LTR Press)
Fundamentals of Financial Management (MindTap Course List)
STATISTICS F/BUSINESS+ECONOMICS-TEXT
MKTG 12:STUDENT ED.-TEXT
Fundamentals of Financial Management, Concise Edition (MindTap Course List)
Accounting Information Systems
Principles of Economics (MindTap Course List)
Contemporary Marketing
Principles of Macroeconomics (MindTap Course List)
Essentials of Business Communication (MindTap Course List)
Foundations of Business (MindTap Course List)
Brief Principles of Macroeconomics (MindTap Course List)
Principles of Microeconomics (MindTap Course List)
Management, Loose-Leaf Version
Financial & Managerial Accounting
Financial Accounting
College Accounting (Book Only): A Career Approach
College Accounting (Book Only): A Career Approach
Accounting (Text Only)
College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)
Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)
Principles of Macroeconomics (MindTap Course List)
Statistics for Business & Economics, Revised (MindTap Course List)
Fundamentals of Financial Management (MindTap Course List)
Exploring Economics
Pkg Acc Infor Systems MS VISIO CD
Corporate Financial Accounting
Survey of Accounting (Accounting I)
PAYROLL ACCT.,2019 ED.(LL)-TEXT
Practical Management Science
Economics (MindTap Course List)
Microeconomics
Macroeconomics
Purchasing and Supply Chain Management
Economics For Today
Cornerstones of Cost Management (Cornerstones Series)
Managerial Accounting
Cornerstones of Financial Accounting
Principles of Microeconomics
Microeconomics: Private and Public Choice (MindTap Course List)
Micro Economics For Today
Understanding Management (MindTap Course List)
Macroeconomics: Private and Public Choice (MindTap Course List)
Economics: Private and Public Choice (MindTap Course List)