Special Order: High-Low Cost Estimation SafeRide, Inc. produces air bag systems that it sells to North American automobile manufacturers. Although the company has a capacity of 300,000 units per year, it is currently producing at an annual rate of 180,000 units. SafeRide, Inc. has received an order from a German manufacturer to purchase 60,000 units at $9.00 each. Budgeted costs for 180,000 and 240,000 units are as follows: 180,000 Units 240,000 Units Manufacturing costs Direct materials Direct labor Factory overhead Total Selling and administrative Total Costs per unit Manufacturing Selling and administrative Total $450,000 315,000 1,215,000 1,980,000 765,000 $2,745,000 $11.00 4.25 $15.25 $ 600,000 420,000 1,260,000 2,280,000 780,000 $ 3,060,000 $9.50 3.25 $ 12.75 Sales to North American manufacturers are priced at $20 per unit, but the sales manager believes the company should aggressively seek the German business even if it results in a loss of $3.75 per unit. She believes obtaining this order would open up several new markets for the company's product. The general manager commented that the company cannot tighten its belt to absorb the $225,000 loss ($3.75 x 60,000) it would incur if the order is accepted. (a) Determine the financial implications of accepting the order. (Hint: Use the high-low method to determine variable costs per unit.) Accepting the offer will + profits by $ (b) How would your analysis differ if the company were operating at capacity? Determine the advantage or disadvantage of accepting the order under full-capacity circumstances. Use a negative sign with your answer to indicate a net disadvantage, if applicable.
Special Order: High-Low Cost Estimation SafeRide, Inc. produces air bag systems that it sells to North American automobile manufacturers. Although the company has a capacity of 300,000 units per year, it is currently producing at an annual rate of 180,000 units. SafeRide, Inc. has received an order from a German manufacturer to purchase 60,000 units at $9.00 each. Budgeted costs for 180,000 and 240,000 units are as follows: 180,000 Units 240,000 Units Manufacturing costs Direct materials Direct labor Factory overhead Total Selling and administrative Total Costs per unit Manufacturing Selling and administrative Total $450,000 315,000 1,215,000 1,980,000 765,000 $2,745,000 $11.00 4.25 $15.25 $ 600,000 420,000 1,260,000 2,280,000 780,000 $ 3,060,000 $9.50 3.25 $ 12.75 Sales to North American manufacturers are priced at $20 per unit, but the sales manager believes the company should aggressively seek the German business even if it results in a loss of $3.75 per unit. She believes obtaining this order would open up several new markets for the company's product. The general manager commented that the company cannot tighten its belt to absorb the $225,000 loss ($3.75 x 60,000) it would incur if the order is accepted. (a) Determine the financial implications of accepting the order. (Hint: Use the high-low method to determine variable costs per unit.) Accepting the offer will + profits by $ (b) How would your analysis differ if the company were operating at capacity? Determine the advantage or disadvantage of accepting the order under full-capacity circumstances. Use a negative sign with your answer to indicate a net disadvantage, if applicable.
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter8: Budgeting
Section: Chapter Questions
Problem 4CMA: Krouse Company produces two products, forged putter heads and laminated putter heads, which are sold...
Related questions
Concept explainers
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Question
Transcribed Image Text:Special Order: High-Low Cost Estimation
SafeRide, Inc. produces air bag systems that it sells to North American automobile manufacturers. Although the company has a capacity of 300,000 units per year, it is currently producing at an annual rate of 180,000 units. SafeRide, Inc. has received an order from a
German manufacturer to purchase 60,000 units at $9.00 each. Budgeted costs for 180,000 and 240,000 units are as follows:
180,000 Units 240,000 Units
Manufacturing costs
Direct materials
Direct labor
Factory overhead
Total
Selling and administrative
Total
Costs per unit
Manufacturing
Selling and administrative
Total
$450,000
315,000
1,215,000
1,980,000
765,000
$2,745,000
$11.00
4.25
$15.25
$ 600,000
420,000
1,260,000
2,280,000
780,000
$ 3,060,000
$9.50
3.25
$ 12.75
Sales to North American manufacturers are priced at $20 per unit, but the sales manager believes the company should aggressively seek the German business even if it results in a loss of $3.75 per unit. She believes obtaining this order would open up several new
markets for the company's product. The general manager commented that the company cannot tighten its belt to absorb the $225,000 loss ($3.75 x 60,000) it would incur if the order is accepted.
(a) Determine the financial implications of accepting the order. (Hint: Use the high-low method to determine variable costs per unit.)
Accepting the offer will
+ profits by $
(b) How would your analysis differ if the company were operating at capacity? Determine the advantage or disadvantage of accepting the order under full-capacity circumstances.
Use a negative sign with your answer to indicate a net disadvantage, if applicable.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Financial And Managerial Accounting
Accounting
ISBN:
9781337902663
Author:
WARREN, Carl S.
Publisher:
Cengage Learning,
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Financial And Managerial Accounting
Accounting
ISBN:
9781337902663
Author:
WARREN, Carl S.
Publisher:
Cengage Learning,
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning