Question

QS please.

Please complete Quick Study as follows: 3 1) Helix Company has been approached by a new customer to provide 2,000 units of its regular product at a special price of $6 per unit. The regular selling price of the product is $8 per unit. Helix is operating at 75% of its capacity of 10,000 units. Identify whether the following costs are relevant to Helix's decision as to whether to accept the order at the special selling price. No additional fixed manufacturing overhead will be incurred because of this order. The only additional selling expense on this order will be a $0.50 per unit shipping cost. There will be no additional administrative expenses because of this order. Place an X in the appropriate column to identify whether the cost is relevant or irrelevant to accepting this order. Item Relevant Not Relevant 14 17 a. Selling price $6 per unit b. Direct materials cost of $1 per unit c. Direct labor of $2 per unit d. Variable manufacturing overhead of $1.50 per unit e. Fixed manufacturing overhead of $0.75 per unit f. Regular selling expenses of $1.25 per unit g. Additional selling expenses of $0.50 per unit h. Administrative expenses of $0.60 per unit 20 22 23 2) Refer to the data in QS 10-1. Based on financial considerations alone, should Helix accept 6 7 8 9 DQ QS PR BYN In-class Ready

Answer 1

Q - 1

I have identified the relevant / irrelevant cash flows in the table below. Please mark it accordingly in your excel sheet at your end.

a. selling price b. direct material c.direct labor cost d.variable mfg cost e. fixed mfg cost f.regular selling expense g.additional selling expense h.administrative expenses relevant relevant relevant relevant not relevant not relevant relevant not relevant

Q - 2

A = Revenue (Cost) / unit 6.00 -1.00 -2.00 -1.50 -0.75 -1.25 -0.50 -0.60 Relevant Revenue (Cost) = 2,000 XA 12000 -2000 -4000 -3000 a. selling price b. direct material c.direct labor cost d.variable mfg cost e. fixed mfg cost f.regular selling expense g.additional selling expense h.administrative expenses total operating expenses net operating income (loss) -1000 -10000 2000

Since, there is a positive net operating income of $ 2,000 on this order, Helix should accept it.

Q - 3

Non financial factors:

• Long term relationship with the client
• Possibility of repeat order from this client
• Is there any better use of the idle facility
• Will this order in any way hinder the service of other orders in hand?

Q - 4

Incremental profit on immediate sale = Number of units x Price = 10,000 x 2 = $ 20,000

Incremental profits on repair and sale = 10,000 x 5 - 18,000 = $ 32,000

Marathon should repair and then sell the units, as incremental profit is higher in this case.