Question

Zachary Quilting Company makes blankets that it markets through a variety of department stores. It makes the blankets in batches of 1,500 units. Zachary made 20,000 blankets during the prior accounting period. The cost of producing the blankets is summarized here.

Materials cost ($26 per unit × 20,000)	$	520,000
Labor cost ($22 per unit × 20,000)		440,000
Manufacturing supplies ($3 × 20,000)		60,000
Batch-level costs (20 batches at $3,000 per batch)		60,000
Product-level costs		320,000
Facility-level costs		390,000
Total costs	$	1,790,000
Cost per unit = $1,790,000 ÷ 20,000 = $89.5

Required

1. Sunny Motels has offered to buy a batch of 500 blankets for $52 each. Zachary’s normal selling price is $91 per unit. Calculate the relevant cost per unit for the special order. Based on the preceding quantitative data, should Zachary accept the special order?

2. Sunny offered to buy a batch of 1,500 blankets for $54 per unit, calculate the relevant cost per unit for the special order. Should Zachary accept the special order?

	a. Cost per unit Should Zachary accept the special order? b. Cost per unit Should Zachary accept the special order?

please explain thank you

Answer 1

Page ① Date: __ __ Page No.: Statement of Relevont cost $ par unit $26 $ 22 $ 3. Material ost Labor cost Manufacturing supplies Batch level cost (& 3000/500) Produt lovel cort faulty level costs Total cost per unit / Relevant cost & 57 = less than relevant wast Offer pricu hence Zachary - order in this $52 le. should not can accept the special Statement of Relevont wast $ perunit 26 $ 22 $ 3 Material cost Labor cost Manufacturing supplies Batch level cost ($3000/1500) Product leve cost foulity level cast - Relevont cost more Offer Price = $54 ie to then hence Zachary should allept $53 relevant cost the special order

Page ② Date: 1 1 Page no: Explanatory Notein o Variable costs are are incurred when Honu Matral, Labor are relevant costs always relevant as they order is achially produced and Many Ochuring supplies since they are variable 2 Batch level cost is also relevont as it is variable per batch and is incurred as and when new batch is produced (variable, batch-wire) Batch level osts = $3000 which needs to be allocated to every unit produced in the batch, t o for port a number of unib in batch- 500 so relevant cost per unit a 3000/500 - $6 Similary for portb. number of unit in batch 1500 so relevant cost per unit $3000/1500 - $2 - - Product level and Faully level costs are sunk cash as they continue to occur whether or not Special order is accepte. Hence they are not relevant to the decision of ordu and therefore ignored.