Question

Can you complete these problems? They go hand-in-hand with each other! (6-7B and 6-8B) Also, the picture of the excel file is how it needs to be layed out. Thanks!

LO 6-2 Exercise 6-7B Special order decision Wilcox Automotive Company manufactures an engine designed for motorcycles and markets the product using its own brand name. Although Wilcox has the capacity to produce 50,000 engines annually, it currently produces and sells only 30,000 units per year. The engine normally sells for $540 per unit, with no quantity discounts. The unit-level costs to produce the engine are $192 for direct materials, $180 for direct labor, and $36 for indirect manufacturing costs. Wilcox expects total annual product and facility-level costs to be $648,000 Page 291 and $900,000, respectively. Assume Wilcox receives a special order from a new customer seeking to buy 1,000 engines for $384 each Required Should Wilcox accept or reject the special order? Support your answer with appropriate computations LO 6-2 Exercise 6-8B Identifying qualitative factors for a special onder decision Required Describe the qualitative factors that Wilcox should consider before making the decision described in Exercise 6-7B.

Answer 1

6-7B:

Wilcox should not accept the special order, as its acceptance results in decrease in net income by $ 2,400.

	Units	Amount	Total
Differential Revenues	1,000	$ 384	$ 384,000
Differential Expenses
Direct materials	1,000	192	(192,000)
Direct labor	1,000	180	(180,000)
Variable indirect manufacturing costs	1,000	14.40	(14,400)
Differential Income			(2,400)

Total indirect manufacturing cost = 30,000 x $ 36 = $ 1,080,000.

Indirect variable manufacturing costs = $ 1,080,000 - $ 648,000 = $ 432,000.

Indirect manufacturing costs per unit = $ 432,000 / 30,000 = $ 14.40

6-8B:

Qualitative factors that Wilcox should consider:

The primary qualitative factor involved in acceptance of the special order is selling the same product lower than the normal sales price. This might upset the existing customers of Wilcox.

Secondly, acceptance of the special order will enable Wilcox to better utilize its spare capacity.

The special order could lead to increase in customers, more regular orders, and exploring business in newer geographies.