MANAGERIAL ACCOUNTING F/MGRS.
MANAGERIAL ACCOUNTING F/MGRS.
5th Edition
ISBN: 9781259969485
Author: Noreen
Publisher: RENT MCG
Question
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Chapter 6, Problem 6.31C

1.

To determine

Introduction: The difference in costs between the variable alternative is used to calculate financial advantage and disadvantage.

To calculate: The lowest price that W could bid for the order and still cover its incremental manufacturing cost.

1.

Expert Solution
Check Mark

Answer to Problem 6.31C

The relevant cost of special order is $23,200.

Explanation of Solution

Relevant cost of W for the one-time special order of 20,000 pounds

    ParticularAmount
    AG-5
      300poundperlot×20lots=6,000pound
    Substitute of BH-3 on one for one basis to its total 3500 pounds if BH-3 is not in this order, it will be salvaged for $600
    3,000
    The remaining 2500 pound be AG-5 at a cost of $1.20 per pound 4,200
    KL-2
      200poundperlot×20lots=4,000poundat$1.05perpounds
    CW-7
      150poundperlot×20lots=3,000poundat$1.35perpounds
    4,050
    DF—6
      175poundperlot×20lots=3,500pound.
    use 3000 pound in inventory at $0.60 per pound
    (40.70 market price-$0.10 handling charge)
    And purchase the remaining 500 pound at $0.70 per pound
    2,150
    Total direct material cost14,000

The direct material cost is $14,000.

  25DDLHsperlot×20lots=500DLHsa

    ParticularAmount $
    400DHLs×$14perDHL5600
    100DHLs×$21perDHL2100
    Total Direct labor cost7700

Hence the direct labor cost is $7,700

Variable overhead cost:

  variablecostofthespecialorder=directmaterialcost+Directlaborcost+variableoverhead=$14,000+$7700+$1500=$23,200

Thus the relevant cost of special order is $23,200

2.

To determine

Introduction: The difference in costs between the variable alternative is used to calculate financial advantage and disadvantage.

The price that W should quote Z for each 20,000 pound lot of the new compound

2.

Expert Solution
Check Mark

Answer to Problem 6.31C

The selling price is $44,800

Explanation of Solution

Selling price:

    ParticularAmount $
    AG-5 ( 6000pound×$1.20perpound)7200
    KL-2 ( 4000pound×$1.05perpound)4200
    CW-7 ( 3000pound×$1.35perpound)4050
    DF-6 ( 3500pound×$0.70perpound)2450
    Total direct material cost17900

The direct material cost is $17,900.

    Particular Amount in $
    Regular time ( 450DHL×$14perDHL)6300
    Overtime premium

      50DHL×$21perDHL

    1050
    Total direct labor cost7350

Manufacturing overhead cost:

  manufacturingoverheadcost=Totaldirectlabourhour×Costperdirectlaborhours=500×13.50=$6,750

The manufacturing overhead cost is $6,750

  manufacturingcost=directmatrerialcost+directlaborcost+manufacturingoverheadcost=17,900+7,350+6,750=$32,000

    ParticularsAmount $
    Full manufacturing cost32,000
    Markup 12,800
    Selling price (full manufacturing cost plus markup)44,800

Thus the selling price is $44,800

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