Fundamentals Of Cost Accounting (6th Edition)
6th Edition
ISBN: 9781259969478
Author: WILLIAM LANEN, Shannon Anderson, Michael Maher
Publisher: McGraw Hill Education
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 4, Problem 39E
Pricing Decisions
Rutkey Collectibles is a small toy company that manufactures and sells metal replicas of classic cars. Each car sells for $40. The cost of each unit follows:
One of Rutkey’s regular customers asked the company to fill a special order of 3,000 units at a selling price of $28 per unit. Rutkey’s can fill the order using existing capacity without affecting total fixed costs for the month. However, Rutkey’s manager was concerned about selling at a price below the $32 cost per unit and has asked for your advice.
Required
- a. Prepare a schedule to show the impact of providing the special order of 3,000 units on Rutkey’s profits in addition to the regular production and sales of 20,000 units per month.
- b. Based solely on the data given, what is the lowest price per unit at which the model cars could be sold for the special order without reducing Rutkey’s profits?
- c. What other factors might Rutkey’s manager want to consider in setting a price for the special order?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Susan Carrie is planning to sell her special pottery for $25 per unit. She purchases units from
a local distributor for $11 each. She can return any unsold units for a full refund. Fixed costs
for booth rental, including lighting and security is $8500.
Required
a) Compute the breakeven point in units sold.
b) Suppose the unit purchased is $9 instead of $11, the fixed cost increases by $2000,
but the selling price is unchanged. Compute the new breakeven point in units sold.
c) Using the above data, explain how cost behaviour affects Patsy Smith's decision-
making?
Diamond Boot Factory normally sells its specialty boots for $25 a pair. An offer to buy 80 boots for $17 per pair was made by an organization hosting a
national event in Norfolk. The variable cost per boot is $9, and special stitching will add another $3 per pair to the cost.
Determine the differential income or loss per pair of boots from selling to the organization.
Income
$
Should Diamond Boot Factory accept or reject the special offer?
Accept the special offer.
Special Order
Smooth Move Company manufactures professional paperweights 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 Smooth Move's other customers, and existing sales will not be affected. Smooth Move normally produces 85,000 units but plans to produce and sell only 65,000 in the coming year. The normal sales price is $15 per unit. Unit cost information is as follows:
Direct materials
$3.10
Direct labor
2.25
Variable overhead
1.15
Fixed overhead
1.80
Total
$8.30
Suppose a customer wants to have its company logo affixed to each paperweight using a label. Smooth Move would have to purchase a special logo labeling machine that will cost $12,000. The machine will be able to label the 15,000 units and then it will be scrapped (with no further value). No other fixed overhead activities will be incurred. In addition, each special logo requires additional direct…
Chapter 4 Solutions
Fundamentals Of Cost Accounting (6th Edition)
Ch. 4 - Fixed costs are often defined as fixed over the...Ch. 4 - What is the difference between a sunk cost and a...Ch. 4 - Are sunk costs ever differential costs? Explain.Ch. 4 - What is the difference between short-run and...Ch. 4 - What costs are included in the full cost of a...Ch. 4 - What costs are included in the full cost of a...Ch. 4 - What costs should be considered for a special...Ch. 4 - What are life-cycle product costing and pricing?Ch. 4 - Prob. 9RQCh. 4 - What do the terms target cost and target price...
Ch. 4 - What is predatory pricing? Why is it illegal in...Ch. 4 - What is dumping? What role would a cost accountant...Ch. 4 - What is price discrimination? How could a cost...Ch. 4 - If we want to maximize profit, why do we use unit...Ch. 4 - A company has learned that a particular input...Ch. 4 - Why are production constraints important in...Ch. 4 - What are some nonfinancial factors in decisions to...Ch. 4 - Prob. 18RQCh. 4 - Prob. 19CADQCh. 4 - Prob. 20CADQCh. 4 - As a marketing manager for an airline, would you...Ch. 4 - Prob. 22CADQCh. 4 - You buy an airline ticket to New York City to see...Ch. 4 - Consider the Business Application item,...Ch. 4 - One of your acquaintances notes, This whole...Ch. 4 - A manager in your organization just received a...Ch. 4 - Many airline frequent-flier programs upgrade elite...Ch. 4 - Consider the opportunity costs you identified in...Ch. 4 - Prob. 29CADQCh. 4 - Prob. 30CADQCh. 4 - Prob. 31CADQCh. 4 - Prob. 32CADQCh. 4 - Prob. 33CADQCh. 4 - Prob. 34CADQCh. 4 - Prob. 35CADQCh. 4 - Prob. 36ECh. 4 - Prob. 37ECh. 4 - Pricing Decisions Assume that MTA Sandwiches sells...Ch. 4 - Pricing Decisions Rutkey Collectibles is a small...Ch. 4 - Prob. 40ECh. 4 - Special Order Fairmount Travel Gear produces...Ch. 4 - Target Costing and Pricing Sids Skins makes a...Ch. 4 - Target Costing and Pricing Domingo Corporation...Ch. 4 - Target Costing and Purchasing Decisions Mira Mesa...Ch. 4 - Target Costing Kearney, Inc., makes kitchen tools....Ch. 4 - Make-or-Buy Decisions Mobility Partners makes...Ch. 4 - Make-or-Buy Decisions Mels Meals 2 Go purchases...Ch. 4 - Prob. 49ECh. 4 - Dropping Product Lines Freeflight Airlines is...Ch. 4 - Pappy’s Toys makes two models of a metal...Ch. 4 - Christine’s Chronographs makes two models of a...Ch. 4 - Unter Components manufactures low-cost navigation...Ch. 4 - Special Orders Sherene Nili manages a company that...Ch. 4 - Prob. 55PCh. 4 - M. Anthony, LLP, produces music in a studio in...Ch. 4 - Davis Kitchen Supply produces stoves for...Ch. 4 - Make or Buy King City Specialty Bikes (KCSB)...Ch. 4 - Prob. 59PCh. 4 - Prob. 60PCh. 4 - Prob. 61PCh. 4 - Prob. 62PCh. 4 - Prob. 63PCh. 4 - Agnew Manufacturing produces and sells three...Ch. 4 - Prob. 65PCh. 4 - Power Music owns five music stores, where it sells...Ch. 4 - You have been asked to assist the management of...Ch. 4 - Prob. 68PCh. 4 - Prob. 69PCh. 4 - Prob. 70PCh. 4 - Prob. 71PCh. 4 - Prob. 72PCh. 4 - Slavin Corporation manufactures two products,...Ch. 4 - Prob. 74PCh. 4 - Prob. 75P
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.Similar questions
- Patsy Smith is planning to sell her special knife for $15 per unit. She purchases units from alocal distributor for $6 each. She can return any unsold units for a full refund. Fixed costs forbooth rental, including lighting and security are $4500. Required a) Compute the breakeven point in units sold. b) Suppose the unit purchased is $5 instead of $6, the fixed cost increases by $500, butthe selling price is unchanged. Compute the new breakeven point in units sold. c) Using the above data, explain how cost behavior affects Patsy Smith’s decision-making?arrow_forwardDiamond Boot Factory normally sells its specialty boots for $35 a pair. An offer to buy 125 boots for $31 per pair was made by an organization hosting a national event in Norfolk. The variable cost per boot is $12, and special stitching will add another $2 per pair to the cost. Determine the differential income or loss per pair of boots from selling to the organizatioarrow_forwardWok Around the Clock, Inc., sells specialty woks. In the current year it expects to incur $840,000 in variable costs and $120,000 in fixed costs to make and sell 10,000 woks at $100 each.If Wok Around the Clock accepts a special order from Hard Wok Cafe to purchase 1,000 woks at $80 each, how much would it make or lose on this special order?arrow_forward
- 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 95,000 units but plans to produce and sell only 65,000 in the coming year. The normal sale price is $16 per unit. Unit cost information is as follows: Direct materials Direct labor Variable overhead Fixed overhead. Total In addition, assume that the new customer also wants to have its company logo affixed to each koozie using a label. Cool Can would have to purchase a special logo labeling machine that will cost $12,000 The machine will be able to label the 15,000 units and then it will be scrapped (with no further value). No other fixed overhead activities will be incurred. In addition, each special logo requires additional direct materials of $0.20 $3.10 2.50 1.15 1.00 $8.55…arrow_forwardGood morning, Please answer questions Patsy Smith is planning to sell her special knife for $15 per unit. She purchases units from alocal distributor for $6 each. She can return any unsold units for a full refund. Fixed costs forbooth rental, including lighting and security is $4500.Requireda) Compute the breakeven point in units sold. b) Suppose the unit purchased is $5 instead of $6, the fixed cost increases by $500, butthe selling price is unchanged. Compute the new breakeven point in units sold. c) Using the above data, explain how cost behaviour affects Patsy Smith’s decisionmaking?arrow_forwardSusan Carrie is planning to sell her special pottery for $25 per unit. She purchases units froma local distributor for $11 each. She can return any unsold units for a full refund. Fixed costsfor booth rental, including lighting and security is $8500.Requireda) Compute the breakeven point in units sold. b) Suppose the unit purchased is $9 instead of $11, the fixed cost increases by $2000,but the selling price is unchanged. Compute the new breakeven point in units sold. c) Using the above data, explain how cost behaviour affects Patsy Smith’s decision-making?arrow_forward
- Diamond Boot Factory normally sells its specialty boots for $24 a pair. An offer to buy 125 boots for $16 per pair was made by an organization hosting a national event in Norfolk. The variable cost per boot is $9, and special stitching will add another $3 per pair to the cost. Determine the differential income or loss per pair of boots from selling to the organization.$fill in the blank 1 Income/Loss? Should Diamond Boot Factory accept or reject the special offer? Yes or Noarrow_forwardThe 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…arrow_forwardThe 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 Direct labor Variable overhead Fixed overhead Total $3.10 1.50 1.00 1.80 $7.40 If Cool Can accepts the order, no fixed manufacturing activities will be affected because there is sufficient excess capacity. Required: Download Excel spreadsheet 1. What are the alternatives for Cool Can? 2. Conceptual Connection: Should Cool Can accept the special order? By how much will operating income increase or decrease if the order is accepted? 3. Conceptual Connection: Briefly explain the significance of the statement in the exercise…arrow_forward
- Marcus Allen is evaluating a business opportunity to sell premium car wax at vintage car shows. The wax is sold in 64-ounce tubs. Marcus can buy the premium wax at a wholesale cost of $29 per tub. He plans to sell the premium wax for $84 per tub. He estimates fixed costs such as travel costs, booth rental cost, and lodging to be $880 per car show. Requirement 1. Determine the number of tubs Marcus must sell per show to break even. Begin by identifying the formula to compute the sales in units at various levels of operating income using the contribution margin approach. Units sold Sales in units Marcus must sell tubs per show to breakeven. Requirement 2a. Determine the sales volume in units necessary to earn the desired profit assuming Marcus wants to earn a profit of $1,320 per show. Marcus must sell tubs per show to earn a profit of $1,320 per show. b. Determine the sales volume in dollars necessary to earn the desired profit assuming Marcus wants to earn a profit of 1,320 per show.…arrow_forwardReubens Deli currently makes rolls for deli sandwiches it produces. It uses 30,000 rolls annually in the production of deli sandwiches. The costs to make the rolls are: A potential supplier has offered to sell Reuben the rolls for $0.90 each. If the rolls are purchased, 30% of the fixed overhead could be avoided, If Reuben accepts the offer, what will the effect on profit be?arrow_forwardDeuce Sporting Goods manufactures a high-end model tennis racket. The company’s forecasted income statement for the year, before any special orders, is as follows: Fixed costs included in the forecasted income statement are $400,000 in manufacturing cost of goods sold and $200,000 in selling expenses. A new client placed a special order with Deuce, offering to buy 1,000 tennis rackets for $100.00 each. The company will incur no additional selling expenses if it accepts the special order. Assuming that Deuce has sufficient capacity to manufacture 1,000 more tennis rackets, by what amount would differential income increase (decrease) as a result of accepting the special order? (Hint: First compute the variable cost per unit relevant to this decision.)arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
Principles of Cost AccountingAccountingISBN:9781305087408Author:Edward J. Vanderbeck, Maria R. MitchellPublisher:Cengage Learning
Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
Essentials Of Business AnalyticsStatisticsISBN:9781285187273Author:Camm, Jeff.Publisher:Cengage Learning,
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub
Principles of Cost Accounting
Accounting
ISBN:9781305087408
Author:Edward J. Vanderbeck, Maria R. Mitchell
Publisher:Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College
Essentials Of Business Analytics
Statistics
ISBN:9781285187273
Author:Camm, Jeff.
Publisher:Cengage Learning,
Fixed Asset Replacement Decision 1235; Author: Accounting Instruction, Help, & How To;https://www.youtube.com/watch?v=LJRzn9K8Nwk;License: Standard Youtube License