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1. Company has a capacity to produce 100,000units in a year. Usually the companyproduces and sells 80,000 units in any year. The selling price is $20.00; variableproduction cost is $8.00 per unit and total fixed cost is$400,000. This year company received arequest of special order for 15,000 units at a selling price of$15.00 per unit.

1.For eachitem below decide it is relevant or not relevant.

a. Selling price of $20.00

b. Special order price of $15.00

c. Variable production cost of $8.00

d. Fixed cost of $400,000

1.Should the company accept this specialorder? Why or why not? show calculations to support youranswer.


2.2. In makingbusiness decisions, management ordinarily considers only financialinformation. TRUE OR FALSE?

3.

3. Theprocess used to identify which financial data changes underalternative courses of action is called incremental analysis. TRUEOR FALSE?

4.

4. 4.Opportunity cost is a cost that cannot be changed by anypresent or future decision. TRUE OR FALSE?

5.

5. Asell-or-process further decision compares the total revenue to beearned and all costs of producing the product. TRUE ORFALSE?

6.

6. Sunkcosts are not relevant in incremental analysis. TRUE ORFALSE?

7.7. What is netpresent value?

a. Thedifference between the present value of net income and the capitalinvestment

b. Thedifference between the net cash flows and the capitalinvestment

c. Thedifference between the present value of net cash flows and thecapital investment

d. The difference between the net cash flows and thepresent value of the capital investment

8.8. To produce oneturkey platter, Jax Inc. uses $10 of variable and $1.50 of fixedcosts. A Peruvian wholesaler has offered to purchase 2,000 plattersat $12 each. Jax will incur special shipping costs of $0.75 perplatter if the order is accepted. Jax has sufficient unusedcapacity to produce the additional platters. What will be theeffect on net income if the special order is accepted?

a. $1000 increase

b. $2500 increase

c. $4000 increase

d. $500 decrease

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Irving Heathcote
Irving HeathcoteLv2
28 Sep 2019

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Delta Company produces a single product. The cost of producing and selling a single unit of this product at the company’s normal activity level of 94,800 units per year is: Direct materials $ 2.10 Direct labor $ 4.00 Variable manufacturing overhead $ 0.80 Fixed manufacturing overhead $ 4.55 Variable selling and administrative expenses $ 2.00 Fixed selling and administrative expenses $ 3.00 The normal selling price is $18.00 per unit. The company’s capacity is 118,800 units per year. An order has been received from a mail-order house for 2,000 units at a special price of $15.00 per unit. This order would not affect regular sales or the company’s total fixed costs. Required: 1. What is the financial advantage (disadvantage) of accepting the special order? 2. As a separate matter from the special order, assume the company’s inventory includes 1,000 units of this product that were produced last year and that are inferior to the current model. The units must be sold through regular channels at reduced prices. What unit cost is relevant for establishing a minimum selling price for these units?

AAA Company makes T-shirtsfor men and sells them to book stores in colleges. The annualcapacity is to make 120,000 shirts. Currently the company makes andsells 90,000 shirts at a selling price of $10.00. The variableproduction cost is $3.00 per unit and variable selling cost is$2.00 per unit. Total fixed cost = $150,000. Wens College hasapproached AAA Company with a special order for 25,000 shirts andis willing to pay $8 per shirt. The college wants its emblem to beimprinted on the shirts. AAA will have to buy a special machine for$12,000 to imprint this emblem.<?xml:namespace prefix = o ns ="urn:schemas-microsoft-com:office:office" />

a. Should the company accept this special order fromWens College? What will be the impact on the company%u2019s incomeif this order is accepted?

b. BONUS (10 POINTS)

Now assume the specialorder is for 40,000 shirts. Wens is willing to pay $8 per shirt andalso needs the imprint of the emblem. However, there will be novariable selling cost paid for this special order. But the companyhas available capacity to produce only 30,000 units. If the specialorder is accepted, company has to fulfill the order for entire40000 units.

Now decide if this specialorder be accepted? Why? Or why not?

EXERCISE 12-9 Special Order [L012-4] Delta Company produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 60,000 units per year is: ........ Direct materials ........ ...... Direct labor .............. Variable manufacturing overhead ....... Fixed manufacturing overhead Variable selling and administrative expense ... Fixed selling and administrative expense ....... $5.10 $3.80 $1.00 $4.20 $1.50 $2.40 The normal selling price is $21 per unit. The company's capacity is 75,000 units per year. An order has been received from a mail-order house for 15,000 units at a special price of $14.00 per unit. This order would not affect regular sales. Required: 1. If the order is accepted, by how much will annual profits be increased or decreased? (The order will not change the company's total fixed costs.) Assume the company has 1,000 units of this product left over from last year that are inferior to the current model. The units must be sold through regular channels at reduced prices. What unit cost is relevant for establishing a minimum selling price for these units? Explain.

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