FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
Bartleby Related Questions Icon

Related questions

bartleby

Concept explainers

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.
expand button
Transcribed Image Text: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
Check Mark
Step 1

Accounting homework question answer, step 1, image 1

Knowledge Booster
Background pattern image
Accounting
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
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
FINANCIAL ACCOUNTING
Accounting
ISBN:9781259964947
Author:Libby
Publisher:MCG
Text book image
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Text book image
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Text book image
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Text book image
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Text book image
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education