None Required Information[The following information applies to the questions displayed below.]Green Grow Incorporated (GGI) manufactures lawn fertilizer. Because of the product's very high quality, GGI often receivesspecial orders from agricultural research groups. For each type of fertilizer sold, each bag is carefully filled to have theprecise mix of components advertised for that type of fertilizer. GGI's operating capacity is 23,000 one-hundred-poundbags per month, and It currently is selling 21,000 bags manufactured in 21 batches of 1,000 bags each. The firm Justreceived a request for a special order of 5,200 one-hundred-pound bags of fertilizer for $131,000 from APAC, a researchorganization. The production costs would be the same, but there would be no variable selling costs. Delivery and otherpackaging and distribution services would cause a one-time $1,600 cost for GGI. The special order would be processed intwo batches of 2,600 bags each. (No Incremental batch-level costs are anticipated. Most of the batch-level costs in thiscase are short-term fixed costs, such as salaries and depreciation.) The following Information is provided about GGI'scurrent operations:Sales priceSales and production cost data for 21,000 bags, per bag:$ 41184Fixed manufacturing costs105Variable manufacturing costsVariable selling costsFixed marketing costsNo marketing costs would be associated with the special order. Because the order would be used in research andconsistency is critical, APAC requires that GGI fill the entire order of 5,200 bags.Assume that the $10.00 fixed manufacturing overhead cost per unit consists of facility-level costs ($7.00/unit at the 21,000-unit output level), with the remainder being setup-related (l.e., batch-level) costs. Assume that the setup-related costsIncrease in total with the number of batches produced and that the facility-level fixed costs do not vary in total, with eitherthe number of units produced or the number of batches produced during a period.Required:1. What is the total relevant cost of filling this special sales order?2. What would be the change in operating Income if the special order is accepted?3. What is the breakeven selling price per unit for the special sales order (I.e., what is the selling price that would result in a zero effecton operating Income)?4. Prepare comparative Income statements, using the contribution format, for both the current situation and assuming the special orderIs accepted at the breakeven price determined in requirement 3.Complete this question by entering your answers in the tabs below.Required 1Required 2 Required 3Required 4What is the total relevant cost of filling this special sales order?Total relevant cost

In a special order, relevant cost of the product is compared with the selling price of the product.…

Answered: Required: 1. What is the total relevant…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter20: Inventory Management: Economic Order Quantity, Jit, And The Theory Of Constraints

Section: Chapter Questions

Problem 17E

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(GGI) manufactures lawn fertilizer. Because of the product’s very high quality, GGI often receives special orders from agricultural research. For each type of fertilizer sold, each bag is carefully filled to have the precise mix of components advertised for that type of fertilizer. GGI’s operating capacity is 26,000 one-hundred-pound bags per month, and it currently is selling 24,000 bags manufactured in 24 batches of 1,000 bags each. The firm just received a request for a special order of 7,000 one-hundred-pound bags of fertilizer for $150,000 from APAC, a research organization. The production costs would be the same, but there would be no variable selling costs. Delivery and other packaging and distribution services would cause a one-time $2,500 cost for GGI. The special order would be processed in two batches of 3,500 bags each. (No incremental batch-level costs are anticipated. Most of the batch-level costs in this case are short-term fixed costs, such as salaries and…
Owly Corporation’s agriculture division currently produces their own soil mix to grow the plants they sell in. Owly currently makes 200,000 cubic meters of soil mix a year. Each cubic meter of soil mix has direct labour costs of $1.50, direct material costs of $3.15, variable overhead costs of $0.75, and fixed overhead costs of $0.70 for a total cost of $6.10 per cubic meter. An outside supplier has offered to sell Owly soil mix for $5.75 per cubic meter. If Owly purchases the soil mix, 25% of the fixed manufacturing overhead will be eliminated, the remaining 75% will still exist.A. What is the net dollar advantage (disadvantage) of purchasing the soil mix rather than making it?B. What is the maximum amount Owly is willing to pay an outside supplier per cubic meter (to the cent) for the soil mix if the supplier commits to supplying all 200,000 cubic meters?C. After one month of greenhouse growing time Owly can produce 100,000 four inch pot basil plants that can be sold for $2.20 each.…
! Required information [The following information applies to the questions displayed below.] Kinnear Plastics manufactures various components for the aircraft and marine industry. Kinnear buys plastic from two vendors: Tappan Corporation and Hill Enterprises. Kinnear chooses the vendor based on price. Once the plastic is received, it is inspected to ensure that it is suitable for production. Plastic that is deemed unsuitable is disposed of. The controller at Kinnear collected the following information on purchases for the past year: Total purchases (tons) Plastic discarded Tappan 5,000 200 The purchasing manager has just received bids on an order for 330 tons of plastic from both Tappan and Hill. Tappan bid $2,112 and Hill bid $2,109 per ton. Effective cost per ton Hill 7,500 375 Required: 1-a. Assume that the average quality, measured by the amounts discarded from the two companies, will continue as in the past. What is the effective cost per ton for both Tappan and Hill? (Do not…
Continental Engineering Ltd manufactures three types of ceramic coffee percolator; the Silver, Gold and the Platinum models. The maximum market demand and resource requirements of each of these products are shown below. The percolators are made from an advanced heat-resistant material that gives the firm a competitive advantage. An email from the purchasing manager has informed you that, because of a problem with the supplier, it should be assumed that the half year’s supply of this special material is limited to 90,000kg. Continental operates on a just-in-time production (JIT) method so that opening and closing inventory levels are zero. The sales director has already accepted an order for 5,000 Gold percolators that, if not fulfilled, would incur a financial penalty of £10,000. This order is included in the Gold’s maximum market demand figure. Continental’s directors need to know whether they should go ahead and satisfy the contract and then prioritise production in the…
Continental Engineering Ltd manufactures three types of ceramic coffee percolator; the Silver, Gold and the Platinum models. The maximum market demand and resource requirements of each of these products are shown below. The percolators are made from an advanced heat-resistant material that gives the firm a competitive advantage. An email from the purchasing manager has informed you that, because of a problem with the supplier, it should be assumed that the half year’s supply of this special material is limited to 90,000kg. Continental operates on a just-in-time production (JIT) method so that opening and closing inventory levels are zero. The sales director has already accepted an order for 5,000 Gold percolators that, if not fulfilled, would incur a financial penalty of £10,000. This order is included in the Gold’s maximum market demand figure. Continental’s directors need to know whether they should go ahead and satisfy the contract and then prioritise production in the…
Activity-Based Supplier CostingLevy Inc. manufactures tractors for agricultural usage. Levy purchases the engines neededfor its tractors from two sources: Johnson Engines and Watson Company. The Johnsonengine has a price of $1,000. The Watson engine is $900 per unit. Levy produces andsells 22,000 tractors. Of the 22,000 engines needed for the tractors, 4,000 are purchasedfrom Johnson Engines, and 18,000 are purchased from Watson Company. The production manager, Jamie Murray, prefers the Johnson engine. However, Jan Booth, purchasingmanager, maintains that the price difference is too great to buy more than the 4,000units currently purchased. Booth also wants to maintain a significant connection withthe Johnson source just in case the less expensive source cannot supply the needed quantities. Jamie, however, is convinced that the quality of the Johnson engine is worth theprice difference.Frank Wallace, the controller, has decided to use activity costing to resolve the issue. Thefollowing…
The Deer Valley Farm produces a natural organic fertil-izer, which it sells mostly to gardeners and homeowners. The annual demand for fertilizer is 220,000 pounds. Thefarm is able to produce 305,000 pounds annually. Thecost to transport the fertilizer from the plant to the farmis $620 per load. The annual carrying cost is $0.12 perpound.a. Compute the optimal order size, the maximum inventorylevel, and the total minimum cost.b. If the farm can increase production capacity to 360,000pounds per year, will it reduce total inventory cost?
Kinnear Plastics manufactures various components for the aircraft and marine industry. Kinnear buys plastic from two vendors: Tappan Corporation and Hill Enterprises. Kinnear chooses the vendor based on price. Once the plastic is received, it is inspected to ensure that it is suitable for production. Plastic that is deemed unsuitable is disposed of. The controller at Kinnear collected the following information on purchases for the past year: Tappan Hill Total purchases (tons) 6,000 10,000 Plastic discarded 120 600 The purchasing manager has just received bids on an order for 290 tons of plastic from both Tappan and Hill. Tappan bid $1,813 and Hill bid $1,786 per ton. Required: Assume that the average quality, measured by the amounts discarded…
TourneSol Canada, Ltd. is a producer of high quality sunflower oil. The company buys raw sunflower seeds directly from large agricultural companies, and refines the seeds into sunflower oil that it sells in the wholesale market. As a by-product, the company also produces sunflower mash (a paste made from the remains of crushed sunflower seeds) that it sells into the market as base product for animal feed. The company has a maximum input capacity of 150 short tons of raw sunflower seeds every day (or 54,750 short tons per year). Of course the company cannot run at full capacity every day as it is required to shut down or reduce capacity for maintenance periods every year, and it experiences the occasional mechanical problem. The facility is expected to run at 90% capacity over the year (or on average 150 x 90% = 135 short tons per day). TourneSol is planning to purchase its supply of raw sunflower seeds from three primary growers, Supplier A, Supplier B, and Supplier C. Purchase prices…
Bevil, Inc., manufactures tractors for agricultural usage. Bevil purchases the engines needed for its tractors from two sources: Johnson Engines and Watson Company. The Johnson engine is the more expensive of the two sources and has a price of $1,000. The Watson engine is $900 per unit. Bevil produces and sells 88,000 trac- tors. Of the 88,000 engines needed for the tractors, 16,000 are purchased from John- son Engines and 72,000 are purchased from Watson Company. The production manager, Jamie Murray, prefers the Johnson engine. However, Jan Booth, purchasing manager, maintains that the price difference is too great to buy more than the 16,000 units currently purchased. Booth also wants to maintain a significant con- nection with the Johnson source just in case the less expensive source cannot supply the needed quantities. Even though Jamie understands the price argument, he is convinced that the quality of the Johnson engine is worth the price difference. Frank Wallace, the…
ABC Chemical Company manufactures industrial chemicals. The company plans to introduce a new chemical solution and needs to develop a standard product cost. The new chemical solution is made by combining a chemical compound (nyclyn) with a solution (salex), heating the mixture to boiling point, adding a second compound (protet), and bottling the resulting solution in 15-litre containers. The initial mix, which is 12 litres in volume, consists of 14 kilograms of nyclyn and 11.6 litres of salex. A 1-litre reduction in volume occurs during the boiling process. The solution is cooled slightly before 8 kilograms of protet are added. The protet evaporates, so it does not affect the total liquid volume. The purchase prices of the raw materials used in the manufacture of this new chemical solution are as follows: Nyclyn $4.90 per kilogram Salex $5.60 per litre Protet $6.80 per kilogram a. 102.36 b. None of the answers given c. 98.36 d. 93.36
Guthrie Generators manufactures a solenoid that it uses in several of its products. Management is considering whether to continue manufacturing the solenoids or to buy them from an outside source. The following information is available: 1. The company needs 20,000 solenoids per year. The solenoids can be purchased from an outside supplier at a cost of $15 per unit. 2. The unit cost of manufacturing the solenoids is $20, computed as follows: Direct materials Direct labor Factory overhead: Variable Fixed Total manufacturing costs Cost per unit ($400,000 ÷ 20,000 units) 3. If the company decides not to manufacture the solenoids, it will eliminate all of the raw materials and direct labor costs but only 75 percent of the variable factory overhead costs. 4. If the solenolds are purchased from the outside source, machinery used in the production of solenoids will be sold at its book value. Accordingly, no gain or loss will be recognized. The sale of this machinery would also eliminate $5,000…

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