Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN: 9781337115773
Author: Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher: Cengage Learning
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Chapter 8, Problem 63P
Special-Order Decision, Qualitative Aspects
Randy Stone, manager of Specialty Paper Products Company, was agonizing over an offer for an order requesting 5,000 boxes of calendars. Specialty Paper Products was operating at 70% of its capacity and could use the extra business. Unfortunately, the order’s offering price of $4.20 per box was below the cost to produce the calendars. The controller, Louis Barns, was opposed to taking a loss on the deal. However, the personnel manager, Yatika Blaine, argued in favor of accepting the order even though a loss would be incurred. It would avoid the problem of layoffs and would help to maintain the company’s community image. The full cost to produce a box of calendars follows:
Later that day, Louis and Yatika met over coffee. Louis sympathized with Yatikás concerns and suggested that the two of them rethink the special-order decision. He offered to determine relevant costs if Yatika would list the activities that would be affected by a layoff. Yatika eagerly agreed and came up with the following activities: an increase in the state
- Total payroll is $1,460,000 per year.
- Layoff paperwork is $25 per laid-off employee.
- Rehiring and retraining is $150 per new employee.
Required:
- 1. CONCEPTUAL CONNECTION Assume that the company will accept the order only if it increases total profits (without taking the potential layoffs into consideration). Should the company accept or reject the order? Provide supporting computations.
- 2. CONCEPTUAL CONNECTION Consider the new information on activity costs associated with the layoff. Should the company accept or reject the order? Provide supporting computations.
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Special-Order Decision, Alternatives, Relevant Costs
Sequoia Paper Products, Inc., manufactures boxed stationery for sale to specialty shops. Currently, the company is operating at 85 percent of capacity. A chain of drugstores has offered to buy 26,000 boxes of Sequoia’s blue-bordered thank-you notes as long as the box can be customized with the drugstore chain’s logo. While the normal selling price is $6.30 per box, the chain has offered just $3.30 per box. Sequoia can accommodate the special order without affecting current sales. Unit cost information for a box of thank-you notes follows:
Direct materials
$1.60
Direct labor
0.36
Variable overhead
0.06
Fixed overhead
2.15
Total cost per box
$4.17
Fixed overhead is $427,000 per year and will not be affected by the special order. Normally, there is a commission of 6 percent of price; this will not be paid on the special order since the drugstore chain is dealing directly with the company. The special order will require…
Special-Order Decision, Alternatives, Relevant Costs
Sequoia Paper Products, Inc., manufactures boxed stationery for sale to specialty shops. Currently, the company is operating at 90 percent of capacity. A chain of drugstores has offered to buy 26,000 boxes of Sequoia’s blue-bordered thank-you notes as long as the box can be customized with the drugstore chain’s logo. While the normal selling price is $6.00 per box, the chain has offered just $3.30 per box. Sequoia can accommodate the special order without affecting current sales. Unit cost information for a box of thank-you notes follows:
Direct materials
$1.80
Direct labor
0.31
Variable overhead
0.09
Fixed overhead
2.10
Total cost per box
$4.30
Fixed overhead is $424,000 per year and will not be affected by the special order. Normally, there is a commission of 5 percent of price; this will not be paid on the special order since the drugstore chain is dealing directly with the company. The special order will require…
Special-Order Decision, Alternatives, Relevant Costs
Sequoia Paper Products, Inc., manufactures boxed stationery for sale to specialty shops. Currently, the company is operating at 90 percent of capacity. A chain of drugstores has offered to buy 27,000 boxes of Sequoia’s blue-bordered thank-you notes as long as the box can be customized with the drugstore chain’s logo. While the normal selling price is $5.90 per box, the chain has offered just $3.40 per box. Sequoia can accommodate the special order without affecting current sales. Unit cost information for a box of thank-you notes follows:
Direct materials
$1.90
Direct labor
0.35
Variable overhead
0.08
Fixed overhead
2.20
Total cost per box
$4.53
Fixed overhead is $428,000 per year and will not be affected by the special order. Normally, there is a commission of 5 percent of price; this will not be paid on the special order since the drugstore chain is dealing directly with the company. The special order will require…
Chapter 8 Solutions
Managerial Accounting: The Cornerstone of Business Decision-Making
Ch. 8 - What is the difference between tactical and...Ch. 8 - Prob. 2DQCh. 8 - What role do past costs play in relevant costing...Ch. 8 - Explain why depreciation on an existing asset is...Ch. 8 - Give an example of a future cost that is not...Ch. 8 - Can direct materials ever be irrelevant in a...Ch. 8 - Why would a firm ever offer a price on a product...Ch. 8 - What is a segment?Ch. 8 - Prob. 9DQCh. 8 - Discuss the importance of complementary effects in...
Ch. 8 - Prob. 11DQCh. 8 - Suppose that a product can be sold at split-off...Ch. 8 - Prob. 13DQCh. 8 - Which of the following is not a step in the...Ch. 8 - Costs that cannot be affected by any future action...Ch. 8 - Use the following information for Multiple-Choice...Ch. 8 - Use the following information for Multiple-Choice...Ch. 8 - Use the following information for Multiple-Choice...Ch. 8 - Which of the following statements is false? a....Ch. 8 - Prob. 7MCQCh. 8 - In a make-or-buy decision, a. the company must...Ch. 8 - Carroll Company, a manufacturer of vitamins and...Ch. 8 - Prob. 10MCQCh. 8 - Garrett Company provided the following...Ch. 8 - Jennings Hardware Store marks up its merchandise...Ch. 8 - Prob. 13MCQCh. 8 - Prob. 14MCQCh. 8 - In the sell-or-process-further decision, a. joint...Ch. 8 - Structuring a Make-or-Buy Problem Fresh Foods, a...Ch. 8 - Structuring a Special-Order Problem Harrison Ford...Ch. 8 - Segmented Income Statement Gorman Nurseries Inc....Ch. 8 - Prob. 19BEACh. 8 - Prob. 20BEACh. 8 - Structuring the Sell-or-Process-Further Decision...Ch. 8 - Use the following information for Brief Exercises...Ch. 8 - Use the following information for Brief Exercises...Ch. 8 - Calculating Price by Applying a Markup Percentage...Ch. 8 - Calculating a Target Cost Yuhu manufactures cell...Ch. 8 - Structuring a Make-or-Buy Problem Coed Scents, a...Ch. 8 - Structuring a Special-Order Problem Rabbit Foot...Ch. 8 - Prob. 28BEBCh. 8 - Use the following information for Brief Exercises...Ch. 8 - Use the following information for Brief Exercises...Ch. 8 - Structuring the Sell-or-Process-Further Decision...Ch. 8 - Prob. 32BEBCh. 8 - Prob. 33BEBCh. 8 - Prob. 34BEBCh. 8 - Brief Exercise 8-35 Calculating a Target Cost...Ch. 8 - Model for Making Tactical Decisions The model for...Ch. 8 - Prob. 37ECh. 8 - Use the following information for Exercises 8-38...Ch. 8 - Prob. 39ECh. 8 - Prob. 40ECh. 8 - Prob. 41ECh. 8 - Prob. 42ECh. 8 - Prob. 43ECh. 8 - Prob. 44ECh. 8 - Prob. 45ECh. 8 - Sell at Split-Off or Process Further Bozo Inc....Ch. 8 - Use the following information for Exercises 8-47...Ch. 8 - Prob. 48ECh. 8 - Calculating Price Using a Markup Percentage of...Ch. 8 - Target Costing H. Banks Company would like to...Ch. 8 - Keep or Buy, Sunk Costs Heather Alburty purchased...Ch. 8 - Use the following information for Exercises 8-52...Ch. 8 - Use the following information for Exercises 8-52...Ch. 8 - Prob. 54PCh. 8 - Prob. 55PCh. 8 - Segmented Income Statement, Management Decision...Ch. 8 - Make or Buy, Qualitative Considerations Hetrick...Ch. 8 - Sell or Process Further Zanda Drug Corporation...Ch. 8 - Keep or Drop AudioMart is a retailer of radios,...Ch. 8 - Accept or Reject a Special Order Steve Murningham,...Ch. 8 - Cost-Based Pricing Decision Jeremy Costa, owner of...Ch. 8 - Product Mix Decision, Single Constraint Sealing...Ch. 8 - Special-Order Decision, Qualitative Aspects Randy...Ch. 8 - Sell or Process Further, Basic Analysis Shenista...Ch. 8 - Product Mix Decision, Single Constraint Norton...Ch. 8 - Sell at Split-Off or Process Further Eunice...Ch. 8 - Differential Costing As pointed out earlier in...Ch. 8 - Prob. 68CCh. 8 - Keep or Drop a Division Jan Shumard, president and...
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