Decision Making Paper 3

1

Panyer Co. is a producer of a tank component. This product, J-5, has the following selling price and costs per unit:
Selling price $300
Direct materials 125
Direct labor 25
Variable manufacturing overhead 50
Shipping and handling 5
Fixed manufacturing overhead 15
Fixed selling and administrative 10
Total costs $230
Panyer has again received a special, one-time offer for 2,000 units of J-5. Panyer is now operating at full capacity, 10,000 units, at a total cost of $2,300,000. To produce this order would cause a 20% increase in fixed costs. What is the minimum price that is acceptable for this one-time, special order?






2

Pontotoc Industries manufactures a product that is used as a subcomponent by other manufacturers. It has the following price and cost structure:
Selling price $300
Costs
Direct materials $40
Direct labor 30
Variable manufacturing overhead 24
Fixed manufacturing overhead 60
Variable selling 6
Fixed selling and administrative 20 (180)
Operating margin $120
Pontotoc received a special, one-time order for 1,000 of the above parts. Assuming Pontotoc has excess capacity, the minimum unit price for this special, one-time order is in excess of






3

Pontotoc Industries manufactures a product that is used as a subcomponent by other manufacturers. It has the following price and cost structure:
Selling price $300
Costs
Direct materials $40
Direct labor 30
Variable manufacturing overhead 24
Fixed manufacturing overhead 60
Variable selling 6
Fixed selling and administrative 20 (180)
Operating margin $120
Pontotoc received a special, one-time order for 1,000 units of its product. However, Pontotoc has an alternative use for this capacity that will result in a contribution of $20,000. The minimum unit price for this special, one-time order is in excess of






4

Production of a special order will increase gross profit when the additional revenue from the special order is greater than






5

When considering a special order that will enable a company to make use of currently idle capacity, which of the following costs is irrelevant?






6

Which of the following cost allocation methods is used to determine the lowest price that can be quoted for a special order that will use idle capacity within a production area?






7

When only differential manufacturing costs are taken into account for special-order pricing, an essential assumption is that






8

Clay Co has considerable excess manufacturing capacity A special job order’s cost sheet includes the following applied manufacturing overhead costs:
Fixed costs $21,000
Variable costs 33,000
The fixed costs include a normal $3,700 allocation for in-house design costs, although no in-house design will be done. Instead, the job will require the use of external designers costing $7,750. What is the total amount to be included in the calculation to determine the minimum acceptable price for the job?






9

A mail-order confectioner sells fine candy in one-pound boxes. It has the capacity to produce 600,000 boxes annually, but forecasts that it will produce and sell only 500,000 boxes in the coming year. The costs to manufacture and distribute the candy are detailed below. The organization has invested capital of $6,750,000.
Variable costs per pound:
Manufacturing $4.85
Packaging 0.35
Distribution 1.80
Total 7.00
Annual fixed costs:
Manufacturing overhead $810,000
Marketing and distribution 270,000
The confectioner has been asked by a retailer to submit a bid for a special order of 40,000 one-pound boxes of candy; this is a one-time order that will not be repeated. While the candy would be almost identical, the candy ingredients would be $0.45 less. The total distribution costs for the entire order would be $32,000. Special setup costs required by this order would amount to $60,000. There would be no other changes in costs, rates, or amounts. The minimum selling price per one-pound box that the confectioner would bid on this special order would be






10

A mail-order confectioner sells fine candy in one-pound boxes. It has the capacity to produce 600,000 boxes annually, but forecasts that it will produce and sell only 500,000 boxes in the coming year. The costs to manufacture and distribute the candy are detailed below. The organization has invested capital of $6,750,000.
Variable costs per pound:
Manufacturing $4.85
Packaging 0.35
Distribution 1.80
Total 7.00
Annual fixed costs:
Manufacturing overhead $810,000
Marketing and distribution 270,000
The selling price per pound that the confectioner should charge for a one-pound box of candy to obtain a 20% rate of return on invested capital is






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