Curtis, a division of Arapahoe Corporation, produces and distributes a payroll s

Question

Curtis, a division of Arapahoe Corporation, produces and distributes a payroll software system. A contribution margin income statement for Curtis for the past year when they sold 12,000 units follows: Assume that Curtis has excess capacity. The sales staff has identified a large company with 200 locations that is interested in Curtis' software system but is willing to pay only $800 for each system. Should Curtis accept the special order? Curtis has the opportunity to purchase a comparable payroll system from a competing vendor for $600 per unit. Should Curtis outsource the production of the software? Given that Curtis is generating a loss, should Arapahoe eliminate it?

Explanation / Answer

A) Give that : Total Variable cost is = Sales -Contribution Variable Cost is = 14400000-7356000 Variable Cost is =     7,044,000 Capacity = 12,000 Unist Variable cost per System = Variable cost/ Units Variable cost per System= = 7044000/12000 Variable cost per System= =               587 Order Rate per System is = 800 Contribution is = 213 Since Order cost is able to recover very well variable cost at excess capacity, It is to be Accepted. B) Cost if purchase from Outside = 600 Variable cost if manufactued In House 587 Saving on In House Manufacturing = 13 So, Since In House Variable cost of manufacture is less cost than external procurement So In House Production is preferred, Reject the External Purchase Offer C) No, As long as Curtis able to Recover its Variable cost. It can be continued to operate. As fixed cost is irrelevant for decision making process, So not considered

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.