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

Question

Awtrey Quilting Company makes blankets that it markets through a variety of department stores. It makes the blankets in batches of 1,000 units. Awtrey made 20,000 blankets during the prior accounting period. The cost of producing the blankets during is summarized here.

Materials cost ($21 per unit x 20,000) $420,000
Labor cost ($22 per unit x 20,000) $440,000
Manufacturing supplies ($2 x 20,000) 40,000
Batch-level costs (20 batches at $4,000 per batch) 80,000
Product-level costs 160,000
Facility-level costs 290,000
Total costs $1,430,000
Cost per unit = $1,430,000 / 20,000 = $71.50

Required

a. Sunny Motels has offered to buy a batch of 500 blankets for $51 each. Awtrey's normal selling price is $90 per unit. Based on the preceding quantitative data, should Awtrey accept the special order? Support your answer with appropriate computations.
b. Would your answer to Requirement a change if Sunny offered to buy a batch of 1,000 blankets for $51 per unit? Support your answer with appropriate computations.
c. Describe the qualitative factors that Awtrey Quiliting Company should consider before accepting a special order to sell blankets to Sunny Motels.

Explanation / Answer

Assumptions:                I considered product level costs and feciliti level costs as fixed costs, these fixed costs are not changed for level of production . Fixed costs are same for 500 units and 1000 units. So there is no need to take fixed costs for this decession making. a. If we take 500 units order Unit cost 500 Units Materials 21 10500 Labour 22 11000 Manufacturing supplies 2 1000 Batch level costs 4000 4000 Total Variable Costs 26500 Variable Cost per Unit 53       Variable cost per unit is $53, if we accept this ordere we have to bear loss of $2 per unit. So it is not acceptable order. b. If we take 1000 units order Unit cost 1000 Units Materials 21 21000 Labour 22 22000 Manufacturing supplies 2 2000 Batch level costs 4000 4000 Total Variable Costs 49000 Variable Cost per Unit 49      Variable Cost per Unit is $49. It is lower than ordere price, so we can accept this order because if we accept this order we can get profit of $2 per unit. c. Qualitative factors to Decession making:      They are the factors relevant to a decision that are difficult to measure in terms of money. Qualitative factors may include: 1. Effect on employee morale, schedules and other internal elements, 2. Relationships with and commitments to suppliers, 3. Effect on present and future customers, 4. Long term future effect on profitability.        In this problem we have to consider only about relationship with customers, and long term future effect on profitability. If we can accept 1000 units order only. In some decision making situations, qualitative aspects are more important than immediate financial benefit from a decision.
Thank you..... Unit cost 500 Units Materials 21 10500 Labour 22 11000 Manufacturing supplies 2 1000 Batch level costs 4000 4000 Total Variable Costs 26500 Variable Cost per Unit 53

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