The price and cost data for one of Galaxy Ltd's standard product are as follows:Selling price64.0022.00Direct materialDirect labour6.00Total manufacturing overhead20.00Each unit requires 0.5 machine hours. Total manufacturing overhead is applied at a rate of$35 per machine hour. The fixed overhead component of this predetermined rate is based onbudgeted annual fixed overhead cost of $600,000 and planned production activity of 40,000machine hours spread evenly throughout the year.Galaxy Ltd received a special order for 16,100 units. The customer requested minormodification of the standard product and has asked for a lower price per unit due to bulkpurchasing, offering to pay $42 per unit. The modification will reduce the amount of directmaterial cost per unit by $2.50 but will require $8,700 in additional setup costs and specialequipment costing $75,000 to manufacture these units. The managers will allocate $5,000 ofexisting fixed administrative costs to this order.Required:Assume that present sales will not be affected. Should the order be accepted from a financialstandpoint? Support your answer with relevant costs and benefit analysis.

Answered: Image /qna-images/answer/11a2cdd6-a1c8-4d29-b677-341bde7ebb53.jpg

Answered: Required: Assume that present sales…

Required: Assume that present sales will not be affected. Should the order be accepted from a financial standpoint? Support your answer with relevant costs and benefit analysis.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: Is

Q: IBe the relevant costs in evaluating whether to accept an order at a special price. Provide an…

A: Managers must often evaluate whether a special order should be accepted, and if the order is…

Q: Is corrective action always necessary when actual costs are higher than standard costs

A: A company which manufactures products and goods keeps a sharp eye on its costs. When the actual cost…

Q: Which of the following best describes an "opportunity cost"? Expected future costs that differ…

A: Introduction: Opportunity cost: Cost for the opportunity lost called opportunity cost.

Q: Ibra Company is considering the following alternatives: Alternative A Alternative B Revenues OMR…

A: We know that, Incremental profit = incremental sales - incremental total cost Total cost = total…

Q: What is meant by relevant costs and there use in making short-term decisions?

A: Cost refers to the amount of expenditure incurred by an individual or an entity in relation to goods…

Q: Explain how the lower of cost and net realizable value rule is applied to purchase commitments.

A: Purchase Commitments: It refers to the commitments or contract made by a company with its suppliers…

Q: please i just need a multiple choice answer Opportunity cost can best be defined as the a.…

A: The answer is provided as follows:

Q: Which of the following statements about the financial risk to providers under different…

A: Risk is the most under capitation.Here's why the reason is:This is accurate that, regardless of…

Q: Is there a difference between relevant costs and incremental costs? Explain

A: Relevant cost: Relevant cost is the cost which is relevant in decision making of a project, and…

Q: Which of the following should be avoided in a contract if cost certainty is important?…

A: Several options have been proposed as the clause that should be avoided in a contract if cost…

Q: Match each of the statements to the correct stem. 1. In a make or buy decision,…

A: Make or buy decision is a decision of cost benefit…

Q: In a decision analysis situation, which one of the following costs is generally not relevant to the…

A: Relevant cost is the cost that is different between different alternatives. This cost is considered…

Q: What is a stand-alone principle and discuss the relevancy of financing cost under this principle.

A: In capital budgeting, the project evaluation and assessment is based on the criteria of project's…

Q: Determining the best approach to pricing requires a cost-benefit trade-off. Explain.

A: The best approach to pricing requires the cost benefit trade-off is explained as below, The Best…

Q: Which pharmacoeconomic evaluation can overcome the problem of acceptability threshold being a…

A: We shall answer the first question since the exact question wasn't specified. Please resubmit a new…

Q: Why opportunity cost is measured and relate with the evaluation of alternative, can it be an…

A: Cost or expenditure is the total amount spent by an individual, group and company to make a finished…

Q: How cost accounting is useful where financial accounting could not be answered. Give any exampleto…

A: Accounting is primarily concerned with identifying, recording, measuring, summarizing transactions…

Q: Explain briefly how do you understand the concept of Cost of Good Sold. (In your own understanding

A: The cost of Good sold is an important matrix that is used in the accounting in finance in order to…

Q: What is the primary disadvantage of basing the costplus pricing formula on absorption cost?

A: Definition: Cost plus-pricing approach: The pricing approach used by the companies to set the target…

Q: What is an advantage of using historical costs on a financial statement? Group of answer choices…

A: In this question, we are required to determine the advantage of using historical costs in a…

Q: The costs most relevant to be used in decision making are: a. sunk costs O b. current costs O c.…

A: Cost: It implies to the expense that is incurred on the manufacturing of a product or rendering…

Q: Identify at least two (2) irrelevant costs in a make vs buy decision

A: Irrelevant costs are those costs that do not change if any of the alternatives are selected between…

Q: What is the definition of cost?

A: In the business, costs are the important measures to determine the value of elements being purchased…

Q: What is the benefit of identifying avoidable and unavoidable cost in decision making process?

A: Avoidable costs: Avoidable Costs, as the name suggests, are the costs that can be avoided of the…

Q: Label each of the following statements as either true (“T”) or false (“F”). A sunk cost will change…

A: Sunk cost: It can be defined as an expense that has already been paid for and cannot be recovered in…

Q: With example, explain the difference between induced and indirect economic impact.

A: Answer:- Economic impact definition:- An economic impact study investigates the effects of a certain…

Q: Discuss the limitations of cost volume profit analysis for planning and decision making.…

A: The question is related to the Cost Volume Profit Analysis. Cost-Volume-Profit (CVP) Analysis is an…

Q: In incremental analysis, only relevant costs are considered when making a decision among…

A: These are the cost that are specific, pertinent and relevant to a particular decision making of…

Q: Discuss the FOUR basic steps in benefit-cost analysis, which aspect of benefit-cost analysis would…

A: Cost-benefit analysis or CBA is referred to as the prices, which helps in measuring the benefits of…

Q: 1. Why are indirect costs not directly traced to cost objects in the same way as direct costs? 2.…

A: Costing is the process of determining and calculating the expenses incurred in producing goods or…

Q: How should mixed costs be classified in cost, volume, and profit analysis?

A: Based on the cost behaviour costs are classified as fixed costs , variable costs and mixed costs.…

Concept explainers

Manufacturing Costs

Manufacturing cost is the total cost of procuring or producing a product. In other words, the manufacturing cost is the cost that an individual or business owner undertakes for the manufacturing of goods.

Question

The price and cost data for one of Galaxy Ltd's standard product are as follows:
Selling price
64.00
22.00
Direct material
Direct labour
6.00
Total manufacturing overhead
20.00
Each unit requires 0.5 machine hours. Total manufacturing overhead is applied at a rate of
$35 per machine hour. The fixed overhead component of this predetermined rate is based on
budgeted annual fixed overhead cost of $600,000 and planned production activity of 40,000
machine hours spread evenly throughout the year.
Galaxy Ltd received a special order for 16,100 units. The customer requested minor
modification of the standard product and has asked for a lower price per unit due to bulk
purchasing, offering to pay $42 per unit. The modification will reduce the amount of direct
material cost per unit by $2.50 but will require $8,700 in additional setup costs and special
equipment costing $75,000 to manufacture these units. The managers will allocate $5,000 of
existing fixed administrative costs to this order.
Required:
Assume that present sales will not be affected. Should the order be accepted from a financial
standpoint? Support your answer with relevant costs and benefit analysis.

Expert Solution

Step 1

Step by step

Solved in 2 steps with 1 images

SEE SOLUTION Check out a sample Q&A here

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

Identify two ways in which a contribution margin income statement differs in format from a traditional income statement. Which is more useful for decision making and why?
Explain the impact of the cost-volume-profit connection on pricing strategy.
i.“Differential Costs” are considered as relevant, where as “sunk Cost ” is considered asirrelevant for decision making purposes. Explain ii. Why opportunity cost is measured and relate with the evaluation of alternative, can it bean opportunity loss? iii. Which one either spoiled goods or defective goods are less economical for the companyand why?
Conceptually, how would you evaluate a quantity discount offerfrom a supplier?
if we produce goods over the capacity, should we consider the fixed marketing cost and variable marketing cost when making the decision to accept or reject a special offer?
answer quickly
Describe Estimating Supplier Costs Using Reverse Price Analysis?
To make predictions about costs and income, you must first classify costs by their behavior. True False
Can someone help by providing an example of revenues and costs that would be impacted by outsourcing decision using ration analysis?
Outline any problems you are aware of associated with the discounting of future costs and benefits in Cost Benefit Analysis.