Gibson Quilting Company makes blankets that it markets through a variety of depa

Question

Gibson Quilting Company makes blankets that it markets through a variety of department stores. It makes the blankets in batches of 3,000 units. Gibson made 30,000 blankets during the prior accounting period. The cost of producing the blankets is summarized here Materials cost ($29 per unit x 30,000) Labor cost ($25 per unit x 30,000) Manufacturing supplies ($6 x 30,000) Batch-level costs (10 batches at $6,000 per batch) Product-level costs Facility-level costs Total costs $ 870,000 750,000 180,000 60,000 190,000 330,000 $2,380,000 Cost per unit$2,380,00030,000$79.3 Required a. Sunny Motels has offered to buy a batch of 600 blankets for $62 each. Gibson's normal selling price is $94 per unit. Calculate the relevant cost per unit for the special order. Based on the preceding quantitative data, should Gibson accept the special order? b. Sunny offered to buy a batch of 3,000 blankets for $65 per unit, calculate the relevant cost per unit for the special order. Should Gibson accept the special order?

Explanation / Answer

a Per unit Total 600 units Incremental revenue 62 37200 Incremental costs: Variable costs: Direct materials 29 17400 Direct labor 25 15000 Manufacturing supplies 6 3600 Total variable cost 60 36000 Fixed costs: Batch costs 6000 Total Incremental costs 42000 Incremental net operating income(loss) -4800 Relevant cost per unit for the special order = 42000/600= $70 The special order should not be accepted b Per unit Total 3000 units Incremental revenue 65 195000 Incremental costs: Variable costs: Direct materials 29 87000 Direct labor 25 75000 Manufacturing supplies 6 18000 Total variable cost 60 180000 Fixed costs: Batch costs 6000 Total Incremental costs 186000 Incremental net operating income(loss) 9000 Relevant cost per unit for the special order = 186000/3000= $62 The special order should be accepted

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