Julison Company produces a single product. The cost of producing and selling a s
ID: 2435372 • Letter: J
Question
Julison Company produces a single product. The cost of producing and selling a single unit of this product at the company’s normal activity level of 68,000 units per month is as follows:Direct materials $ 33.80
Direct labor $ 3.90
Variable manufacturing overhead $ 1.60
Fixed manufacturing overhead $ 20.60
Variable selling & administrative expense $ 2.60
Fixed selling & administrative expense $ 7.00
The normal selling price of the product is $79.90 per unit. An order has been received from an overseas customer for 2,500 units to be delivered this month at a special discounted price. This order would have no effect on the company’s normal sales and would not change the total amount of the company’s fixed costs. The variable selling and administrative expense would be $0.24 less per unit on this order than on normal sales. Direct labor is a variable cost in this company.
Required:
a.
Suppose there is ample idle capacity to produce the units required by the overseas customer and the special discounted price on the special order is $70.10 per unit. By how much would this special order increase (decrease) the company’s net operating income for the month? (Input the amount as positive value. Do not round intermediate calculations. Round your answer to the nearest dollar amount. Omit the "$" sign in your response.)
Net operating income by $ .
b.
Suppose the company is already operating at capacity when the special order is received from the overseas customer. What would be the opportunity cost of each unit delivered to the overseas customer? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)
Opportunity cost $
c.
Suppose there is not enough idle capacity to produce all of the units for the overseas customer and accepting the special order would require cutting back on production of 600 units for regular customers. What would be the minimum acceptable price per unit for the special order? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)
Minimum acceptable price $
Explanation / Answer
a Without special With Special order Differential order Sales Variable Costs : 5433200 5608450 175250 Direct Material - 2298400 2382900 84500 Direct Labor 265200 274950 9750 Variable MOH 108800 112800 4000 Variable SOH 176800 183300 6500 Fixed MOH 1400800 1400800 0 Fixed SOH 476000 476000 0 Incremental Net Income 70500 Since , the Net Income increases by $70,500 the order should be accepted. Note : For Variable costs without special order, the material , labor and Over head have been multiplied by 68000 units For Variable costs with special order, the material , labor and Over head have been multiplied by 68000 + 2500=70,500units b The opportunity cost in this case would be the contribution foregone Unit contribution is the Selling Price less Variable costs In this case , it is , {70.10 -(33.8 + 3.9 +1.60 +2.6}=28.2 70.10 -41.9=28.2 Total contribution foregone : 28.2 * 2500 = $70,500 Hence, $70,500 would be the opportunity cost of not accepting the order. c In this scenario, the minimum price for special order should be equal to the contribution foregone by not producing 600 units Contribution foregone = 600 * 28.2 = 16,920 Suppose , the price is s 2500 ( s- 41.9 ) = 16920 Solving the equation, we get s= 48.668 Hence the minimum price is 48.668
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