Structuring a Special-Order Problem
Harrison Ford Company has been approached by a new customer with an offer to purchase 10,000 units of its model IJ5 at a price of $5 each. The new customer is geographically separated from the company's other customers, and existing sales would not be affected. Harrison normally produces 75,000 units of IJ5 per year but only plans to produce and sell 60,000 in the coming year. The normal sales price is $12 per unit. Unit cost information for the normal level of activity is as follows:
Direct materials | $1.75 |
Direct labor | 2.50 |
Variable overhead | 1.50 |
Fixed overhead | 3.25 |
Total | $9.00 |
Fixed overhead will not be affected by whether or not the special order is accepted.
Required:
1.
Should the company accept or reject the special order?
Reject
2. By
how much will operating income increase or decrease if the order is
accepted?
Decrease by $
For the special order the company will not incur any additional fixed cost as the special order is within the normal range of production. | |
Sales ( 10000 * 5 ) | 50000 |
(-) Direct materials ( 10000 * 1.75 ) | 17500 |
(-) Direct labor ( 10000 * 2.50 ) | 25000 |
(-) Variable overhead ( 10000 * 1.50 ) | 15000 |
Income / (loss) | (7500) |
Required 1 : |
Answer : Reject |
Required 2 : |
Answer : Decrease by 7500 |
Structuring a Special-Order Problem Harrison Ford Company has been approached by a new customer with an...
Structuring a Special-Order Problem Harrison Ford Company has been approached by a new customer with an offer to purchase 10,000 units of its model IJ5 at a price of $4.00 each. The new customer is geographically separated from the company's other customers, and existing sales would not be affected. Harrison normally produces 75,000 units of IJ5 per year but only plans to produce and sell 60,000 in the coming year. The normal sales price is $12 per unit. Unit cost...
Brief Exercise 8-17 Structuring a Special-Order Problem Harrison Ford Company has been approached by a new customer with an offer to 10,000 units of its model IJ5 at a price of $5 each. The new customer is geographically rated from the company's other customers, and existing sales would not be affected. Harrison normally produces 75,000 units of IJ5 per year but only plans to produce and sell 60,000 coming year. The normal sales price is $12 per unit. Unit cost...
Structuring a Special-Order Problem Recently Wang Company was been approached by a new customer with an offer to purchase 10,000 units of its model I34 at a price of $4.55 each. The new customer is geographically separated from the company's other customers, and existing sales would not be affected. Normally Wang Company produces 75,000 units of I34 per year but only plans to produce and sell 60,000 in the coming year. The normal sales price is $12 per unit. Unit...
Special-Order Decision Smooth Move Company manufactures professional paperweights and has been approached by a new customer with an offer to purchase 15,000 units at a per-unit price of $9.00. The new customer is geographically separated from Smooth Move's other customers, and existing sales will not be affected. Smooth Move normally produces 88,000 units but plans to produce and sell only 65,000 in the coming year. The normal sales price is $16 per unit. Unit cost information is as follows: Direct...
Special-Order Decision Smooth Move Company manufactures professional paperweights and has been approached by a new customer with an offer to purchase 15,000 units at a per-unit price of $8.00. The new customer is geographically separated from Smooth Move's other customers, and existing sales will not be affected. Smooth Move normally produces 95,000 units but plans to produce and sell only 65,000 in the coming year. The normal sales price is $14 per unit. Unit cost information is as follows: Direct...
Smooth Move Company manufactures professional paperweights and has been approached by a new customer with an offer to purchase 15,000 units at a per-unit price of $7.00. The new customer is geographically separated from Smooth Move's other customers, and existing sales will not be affected. Smooth Move normally produces 82,000 units but plans to produce and sell only 65,000 in the coming year. The normal sales price is $12 per unit. Unit cost information is as follows: Direct materials $3.10...
Smooth Move Company manufactures professional paperweights and has been approached by a new customer with an offer to purchase 15,000 units at a per-unit price of $7.00. The new customer is geographically separated from Smooth Move's other customers, and existing sales will not be affected. Smooth Move normally produces 82,000 units but plans to produce and sell only 65,000 in the coming year. The normal sales price is $12 per unit. Unit cost information is as follows: Direct materials $3.10...
Smooth Move Company manufactures professional paperweights and has been approached by a new customer with an offer to purchase 15,000 units at a per-unit price of $7.00. The new customer is geographically separated from Smooth Move's other customers, and existing sales will not be affected. Smooth Move normally produces 82,000 units but plans to produce and sell only 65,000 in the coming year. The normal sales price is $12 per unit. Unit cost information is as follows: Direct materials $3.10...
Smooth Move Company manufactures professional paperweights and has been approached by a new customer with an offer to purchase 15,000 units at a per-unit price of $7.00. The new customer is geographically separated from Smooth Move's other customers, and existing sales will not be affected. Smooth Move normally produces 82,000 units but plans to produce and sell only 65,000 in the coming year. The normal sales price is $12 per unit. Unit cost information is as follows: Direct materials $3.10...
Coroid Manufacturers Inc. is approached by a European customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. The company has excess capacity. The following per unit data apply for sales to regular customers: $150 80 145 Direct materials Direct labor Manufacturing support Marketing coste Fructe Manufacturing support Marketing cost Total cost Map 14016) Targeted selling price What is the contribution margin per unit? 5260 480 5220 1650 135 89 650 260 391...