Question

Special Order Total cost data follow for Glendale Manufacturing Company, which has a normal capacity per period of 8,000 units of product that sell for $60 each. regular sales volume should continue to equal normal capacity. Direct material $102,400 Direct labor 64,000 Rectangular Snip Variable manufacturing overhead 48,400 Fixed manufacturing overhead (Note 1) 38,400 Selling expense (Note 2) 35,200 Administrative expense (fixed) 15,000 $303,400 Notes: 1. Beyond normal capacity, fixed overhead costs increase $1,800 for each 500 units or fraction thereof until a maximum capacity of 10,000 units is r 2. Selling expenses consist of a 6% sales commission and shipping costs of 80 cents per unit. Glendale pays only three-fourths of the regular sales c 501 to 1,000 units and only two-thirds the regular commission on sales totaling 1,000 units or more. Glendale's sales manager has received a special order for 1,200 units from a large discount chain at a price of $36 each, F.O.B. factory. The controlle following additional cost data related to the special order: 1. Changes in the product's design will reduce direct material costs $1.50 per unit. 2. Special processing will add 20% to the per-unit direct labor costs 3. Variable overhead will continue at the same proportion of direct labor costs. 4. Other costs should not be affected. a. Present an analysis supporting a decision to accept or reject the special order. (Round computations to the nearest cent.)

Answer 1

Solution a:

Differential Analysis
Particulars	Per unit	Total
Differential revenue	$36.00	$43,200.00
Differential costs:
Direct materials	$11.30	$13,560.00
Direct labor	$9.60	$11,520.00
Variable manufacturing overhead	$7.26	$8,712.00
Selling:
Commission	$2.40	$2,880.00
Shipping (FOB Factory terms)	$0.80	$960.00
Total variable costs	$31.36	$37,632.00
Contribution margin from special order	$4.64	$5,568.00
Fixed cost increment:
Extra cost		$5,400.00
Profit on special order		$168.00

Solution b:

Lowest price to be received by Glendale = $36+ ($3,600 - $168) / 1200 = $38.86 per unit.