FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
expand_more
expand_more
format_list_bulleted
Related questions
Question
GEM Limited has a single product Flicks. The company normally produces and sells 80,000 units of Flicks each year at a price of $240 per unit. The company’s unit costs at this level of activity are as follow:
|
Direct material |
$57 |
|
Direct labour |
60 |
|
Variable manufacturing |
16.80 |
|
Fixed manufacturing overhead |
30 |
|
Variable selling and administrative costs |
10.20 |
|
Fixed selling and administrative costs |
27 |
|
Total unit cost |
$201 |
GEM has sufficient capacity to produce 100 000 units of Flicks a year without any increase in fixed manufacturing overhead.
Required:
(a) GEM has an opportunity to sell 10 000 units to an overseas customer. Import duties and other special costs associated with this order would total $42 000. The only selling costs that would be associated with the order would be a shipping cost of $9.00 per unit. What would be the minimum acceptable unit price for GEM to consider this order? (hint: GEM would not accept the order if it would reduce the company’s profit)
(b) The company has 200 units of Flicks on hand that were produced two months ago. Due to blemishes on the units, it will be impossible to sell these units at the normal price. If the company wishes to sell them through regular sales channels, what would be the relevant cost for setting the minimum price? Explain.
(c) “All future costs are relevant in decision making.” Do you agree? Explain.
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 nowThis is a popular solution!
Step by stepSolved in 3 steps with 3 images
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
- 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 97,200 units per year is: Direct materials $ 2.00 Direct labor $ 4.00 Variable manufacturing overhead $ 0.80 Fixed manufacturing overhead $ 5.05 Variable selling and administrative expenses $ 1.40 Fixed selling and administrative expenses $ 3.00 The normal selling price is $24.00 per unit. The company’s capacity is 117,600 units per year. An order has been received from a mail-order house for 1,700 units at a special price of $21.00 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…arrow_forwardPolaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 30,000 Rets per year. Costs associated with this level of production and sales are given below: Unit Total Direct materials $ 15 $ 450,000 Direct labor 8 240,000 Variable manufacturing overhead 3 90,000 Fixed manufacturing overhead 7 210,000 Variable selling expense 4 120,000 Fixed selling expense 6 180,000 Total cost $ 43 $ 1,290,000 The Rets normally sell for $48 each. Fixed manufacturing overhead is $210,000 per year within the range of 24,000 through 30,000 Rets per year. Required: 1. Assume that due to a recession, Polaski Company expects to sell only 24,000 Rets through regular channels next year. A large retail chain has offered to purchase 6,000 Rets if Polaski is willing to accept a 16% discount off the regular price. There would be no sales commissions on…arrow_forwardDelta 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 99.600 units per year is: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses Fixed selling and administrative expenses $ 1.80 $ 3.00 $ 0.60 $4.35 $ 1.60 $ 2.00 The normal selling price is $26.00 per unit. The company's capacity is 133.200 units per year. An order has been received from a mail- order house for 2,800 units at a special price of $23.00 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 ordes, 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…arrow_forward
- Han Products manufactures 38,000 units of part S-6 each year for use on its production line. At this level of activity, the cost per unit for part S-6 is: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost per part $ 3.10 10.00 2.90 9.00 $ 25.00 An outside supplier has offered to sell 38,000 units of part S-6 each year to Han Products for $21 per part. If Han Products accepts this offer, the facilities now being used to manufacture part S-6 could be rented to another company for $88,000 per year. However, Han Products determined two-thirds of the fixed manufacturing overhead being applied to part S-6 would continue even if part S-6 were purchased from the outside supplier. Required: What is the financial advantage (disadvantage) of accepting the outside supplier's offer? > Answer is complete but not entirely correct. Financial advantage $ 126,000arrow_forwardDelta 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 105,600 units per year is: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses Fixed selling and administrative expenses The normal selling price is $19.00 per unit. The company's capacity is 123,600 units per year. An order has been received from a mail- order house for 1,500 units at a special price of $16.00 per unit. This order would not affect regular sales or the company's total fixed costs. $ 1.80 $3.00 $ 0.60 $4.25 $ 1.80 $2.00 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…arrow_forwardDelta 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 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 or total fixed costs. $ 5.10 $ 3.80 $ 1.00 $ 4.20 $ 1.50 $ 2.40 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 that are inferior quality. The units must be sold through regular channels at a reduced price. The company does not expect the selling of these inferior…arrow_forward
- Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 34,000 Rets per year. Costs associated with this level of production and sales are as follows: Unit Total Direct materials $ 19.00 $ 646,000 Direct labour 12.00 408,000 Variable manufacturing overhead 7.00 238,000 Fixed manufacturing overhead 13.00 442,000 Variable selling expense 4.00 136,000 Fixed selling expense 6.00 204,000 Total cost $ 61.00 $ 2,074,000 The Rets normally sell for $66 each. Fixed manufacturing overhead is constant at $442,000 per year within the range of 21,000 through 34,000 Rets per year. Required: 1. Assume that, due to a recession, Polaski Company expects to sell only 21,000 Rets through regular channels next year. A large retail chain has offered to purchase 13,000 Rets if Polaski is…arrow_forwardCane Company manufactures two products called Alpha and Beta that sell for $140 and $100, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 106,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Alpha Beta Direct materials $ 32 $ 16 Direct labor 24 19 Variable manufacturing overhead 10 9 Traceable fixed manufacturing overhead 20 22 Variable selling expenses 16 12 Common fixed expenses 19 14 Total cost per unit $ 121 $ 92 The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are unavoidable and have been allocated to products based on sales dollars. Foundational 11-3 (Algo) 3. Assume that Cane expects to produce and sell 84,000 Alphas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy…arrow_forwardCane Company manufactures two products called Alpha and Beta that sell for $130 and $90, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 102,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Alpha Beta Direct materials $ 25 $ 10 Direct labor 22 21 Variable manufacturing overhead 17 7 Traceable fixed manufacturing overhead 18 20 Variable selling expenses 14 10 Common fixed expenses 17 12 Total cost per unit $ 113 $ 80 The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are unavoidable and have been allocated to products based on sales dollars. 13. Assume that Cane’s customers would buy a maximum of 82,000 units of Alpha and 62,000 units of Beta. Also assume that the raw material available for production is limited to 162,000 pounds. How many…arrow_forward
- Gadubhaiarrow_forwardGEM Limited has a single product Flicks. The company normally produces and sells 80,000 units of Flicks each year at a price of $240 per unit. The company’s unit costs at this level of activity are as follow:Direct material $57.00Direct labour 60.00Variable manufacturing overhead 16.80Fixed manufacturing overhead 30.00Variable selling and administrative costs 10.20Fixed selling and administrative costs 27.00Total unit cost $201.00GEM has sufficient capacity to produce 100 000 units of Flicks a year without any increase in fixed manufacturing overhead.Required:(a) GEM has an opportunity to sell 10 000 units to an overseas customer. Import duties and other special costs associated with this order would total $42 000. The only selling costs…arrow_forwardPolaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 36,000 Rets per year. Costs associated with this level of production and sales are given below: Unit Total Direct materials $ 20 $ 720,000 Direct labor 10 360,000 Variable manufacturing overhead 3 108,000 Fixed manufacturing overhead 9 324,000 Variable selling expense 2 72,000 Fixed selling expense 6 216,000 Total cost $ 50 $ 1,800,000 The Rets normally sell for $55 each. Fixed manufacturing overhead is $324,000 per year within the range of 31,000 through 36,000 Rets per year. Required: 1. Assume that due to a recession, Polaski Company expects to sell only 31,000 Rets through regular channels next year. A large retail chain has offered to purchase 5,000 Rets if Polaski is willing to accept a 16% discount off the regular price. There would be no sales commissions on this order; thus, variable selling expenses would be slashed by…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,
Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSON
Intermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill Education
Financial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education