Question

1
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. For the foreseeable future, regular sales volume should continue to equal normal capacity. Direct material $98,400 Direct labor 60,000 Variable manufacturing overhead 44,400 Fixed manufacturing overhead (Note 1) 38,400 Selling expense (Note 2) 35,200 Administrative expense (fixed) 15,000 $291,400 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 reached. 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 commission on sales totaling 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 controller's office has furnished the 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.) Differential Analysis
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Answer 1

Answer:

Special order:

working notes:

output = 8,000 units

	$	Per unit	Changes	Revised cost
Direct material	98,400	12.30	-1.50	10.80
Direct labor	60,000	7.50	+1.50	9.00
Variable overhead	44,400	5.55		6.66
Variable overhead % of Direct labor		74%		74%

A) Differential Analysis:

	Per Unit($)	Total($)
Differential revenue	36	43,200
Differential costs:
Direct material	10.80
Direct labor	9.00
variable manufacturing overhead	6.66
Selling:
Commission ( $36 * 6% * 2/3)	1.44
Shipping (F.O.B factory items)	0.00
Total variable costs	27.90	33,480
Contribution margin from special order		9,720
Fixed cost increment:
Extra cost (1,800 * 3)		5,400
Profit on special order		4,320

b)

	$
Profit needed	3,600
Variable cost ( 10.80+9.00+6.66)	31,752
Fixed cost	5,400
Total target needed	40,752
Cost per unit	33.96
Commission @4% on selling price
So selling price will be ($33.96/0.96)	35.38

Make or Buy :

A) Differential analysis

	$	$
Cost to purchase tops: 1,500* ($425+$16+$28)		703,500
Costs avoided by purchasing tops:
Direct materials(290,000+96,000+24,000)	410,000
Direct labor	162,000
Variable manufacturing overheads	30,000
Fixed manufacturing overheads(152,000*0.2)	30,400	632,400
Net advantage or (disadvantage) to purchase alternative		(71,100)

B)

Costs avoided by manufacturing tops	632,400
Add: CM from subcontracting job	50,100
Total cost	682,500
Divided by units	1500units
Total unit cost	455.00
Less: Trademark cost per unit	16.00
Less: Transportation cost per unit	28.00
Maximum price	411.00

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