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The Cool Can Company manufactures drink koozies and has been approached by a new customer with an offer to purchase 15,000 units at a per-unit price of $7.00. The new customer is geographically separated from Cool Can's other customers, and existing sales will not be affected. Cool Can normally produces 82,000 units but plans to produce and sell only 65,000 in the coming year. The normal sales price is $12 per unit. Unit cost information is as follows: Direct materials $3.10 Direct labor Variable overhead Fixed overhead Total 1.50 1.00 1.80 $7.40 However, assume that Cool Can plans to produce and sell 70,000 units in the coming year (rather than the originally anticipated 65,000 units). Required: 1. Using Excel (or some other spreadsheet software tool), calculate the amount by which total operating income increases or decreases if the order is accepted. Decrease -84,000 X 2. Conceptual Connection: Should Cool Can accept the special order when sales at the regular price are expected to be 70,000 units? No 3. Now assume that all direct variable costs are 20% higher and all indirect costs are 40% higher than originally stated in the set up box. These cost increases apply to both normal and special-order units. Finally, assume the new customer has offered to increase its price to $10.00 (from the $7.00 originally stated in the set up box). Using your spreadsheet, calculate the amount by which total operating income increases or decreases if the order is accepted. Increase 21,000 X

The Cool Can Company manufactures drink koozies and has been approached by a new customer with an offer to purchase 15,000 units at a per-unit price of $7.00. The new customer is geographically separated from Cool Can's other customers, and existing sales will not be affected. Cool Can normally produces 82,000 units but plans to produce and sell only 65,000 in the coming year. The normal sales price is $12 per unit. Unit cost information is as follows: Direct materials $3.10 Direct labor Variable overhead Fixed overhead Total 1.50 1.00 1.80 $7.40 However, assume that Cool Can plans to produce and sell 70,000 units in the coming year (rather than the originally anticipated 65,000 units). Required: 1. Using Excel (or some other spreadsheet software tool), calculate the amount by which total operating income increases or decreases if the order is accepted. Decrease -84,000 X 2. Conceptual Connection: Should Cool Can accept the special order when sales at the regular price are expected to be 70,000 units? No 3. Now assume that all direct variable costs are 20% higher and all indirect costs are 40% higher than originally stated in the set up box. These cost increases apply to both normal and special-order units. Finally, assume the new customer has offered to increase its price to $10.00 (from the $7.00 originally stated in the set up box). Using your spreadsheet, calculate the amount by which total operating income increases or decreases if the order is accepted. Increase 21,000 X

Managerial Accounting: The Cornerstone of Business Decision-Making
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter8: Tactical Decision-making And Relevant Analysis
Section: Chapter Questions
Problem 40E
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The Cool Can Company manufactures drink koozies and has been approached by a new customer with an offer to purchase 15,000 units at a per-unit price of $7.00. The new customer is geographically separated from Cool Can's other customers, and existing sales will not be affected. Cool Can normally produces 82,000 units but plans to produce and sell only 65,000 in the coming year. The normal sales price is $12 per unit. Unit cost information is as follows: Direct materials $3.10 Direct labor Variable overhead Fixed overhead Total 1.50 1.00 1.80 $7.40 However, assume that Cool Can plans to produce and sell 70,000 units in the coming year (rather than the originally anticipated 65,000 units). Required: 1. Using Excel (or some other spreadsheet software tool), calculate the amount by which total operating income increases or decreases if the order is accepted. Decrease -84,000 X 2. Conceptual Connection: Should Cool Can accept the special order when sales at the regular price are expected to be 70,000 units? No 3. Now assume that all direct variable costs are 20% higher and all indirect costs are 40% higher than originally stated in the set up box. These cost increases apply to both normal and special-order units. Finally, assume the new customer has offered to increase its price to $10.00 (from the $7.00 originally stated in the set up box). Using your spreadsheet, calculate the amount by which total operating income increases or decreases if the order is accepted. Increase 21,000 X
Transcribed Image Text:The Cool Can Company manufactures drink koozies and has been approached by a new customer with an offer to purchase 15,000 units at a per-unit price of $7.00. The new customer is geographically separated from Cool Can's other customers, and existing sales will not be affected. Cool Can normally produces 82,000 units but plans to produce and sell only 65,000 in the coming year. The normal sales price is $12 per unit. Unit cost information is as follows: Direct materials $3.10 Direct labor Variable overhead Fixed overhead Total 1.50 1.00 1.80 $7.40 However, assume that Cool Can plans to produce and sell 70,000 units in the coming year (rather than the originally anticipated 65,000 units). Required: 1. Using Excel (or some other spreadsheet software tool), calculate the amount by which total operating income increases or decreases if the order is accepted. Decrease -84,000 X 2. Conceptual Connection: Should Cool Can accept the special order when sales at the regular price are expected to be 70,000 units? No 3. Now assume that all direct variable costs are 20% higher and all indirect costs are 40% higher than originally stated in the set up box. These cost increases apply to both normal and special-order units. Finally, assume the new customer has offered to increase its price to $10.00 (from the $7.00 originally stated in the set up box). Using your spreadsheet, calculate the amount by which total operating income increases or decreases if the order is accepted. Increase 21,000 X
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