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.

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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

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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.

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