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Finch Quilting Company makes blankets that it markets through a variety of department stores. It makes the blankets in batches of 1,000 units. Finch made 26,000 blankets during the prior accounting period. The cost of producing the blankets is summarized here.Materials cost ($24 per unit x 26,000) Labor cost ($19 per unit x 26,000) Manufacturing supplies ($2 * 26,000) Batch-level co

  1. Sunny Motels has offered to buy a batch of 400 blankets for $60 each. Finch’s normal selling price is $96 per unit. Calculate the relevant cost per unit for the special order. Based on the preceding quantitative data, should Finch accept the special order?

  2. Sunny offered to buy a batch of 1,000 blankets for $60 per unit, calculate the relevant cost per unit for the special order. Should Finch accept the special order?

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

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Answer #1

Ans:

Finch Quilting Company

Note :- Product level costs and facility level costs are irrelevant here as they do not change

in accordance with the number of units produced.

Part a - 1

Revenue ( 400 * 60 )

24000

Less:-

Material cost ( 400 * 24 )

9600

Labor ( 400 * 19 )

7600

Supplies ( 400 * 2 )

800

Batch level cost ( 8000 * 1 )

8000

26000

Net Income

-2000

Relevant costs are :-

Material cost ( 400 * 24 )

9600

Labor ( 400 * 19 )

7600

Supplies ( 400 * 2 )

800

Batch level cost ( 8000 * 1 )

8000

Total costs

26000

units

400

Relevat cost per unit

65

The order should not be accepted

Part b - 1

Revenue ( 1000 * 60 )

60000

Less:-

Material cost ( 1000 * 24 )

24000

Labor ( 1000 * 19 )

19000

Supplies ( 1000 * 2 )

2000

Batch level cost ( 8000 * 1 )

8000

53000

Net Income

7000

Relevant costs are :-

Material cost ( 1000 * 24 )

24000

Labor ( 1000 * 19 )

19000

Supplies ( 1000 * 2 )

2000

Batch level cost ( 8000 * 1 )

8000

Total costs

53000

units

1000

Relevat cost per unit

53

The order should be accepted
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