Walston company produces kitchen cabinets for home buildersthe cost of producing
ID: 2448037 • Letter: W
Question
Walston company produces kitchen cabinets for home buildersthe cost of producing 5000 cabinets are materials 500,000$ labor 250,000$ variable overhead 100,000$ fixed overhead 400,000$ for a total of 1,250,000$. Walston also incurs selling expense of 20$ per cabinet. Wellington corp has offered wiliston 165$ per cabinet for a special order of 1000 cabnets. The cabinets would not effect wilstons current sales. Selling exppenses per cabinet would only be 5$ per cabinet Walston has available capacity to do the work.
a) prepare an incremental analysis for the special order
b) should walston accept the special order? Why or Why not
please show all work
Explanation / Answer
Variable cost
Material $500,000
Labor $250,000
variable overhead $100,000
Total variable cost $850,000
units produced 5,000
variable cost /unit $170 / unit
Special offer net of additional selling expenses per cabinet $ 165-$5=$160
Loss on accepting the additional order = $160-$170=$10/unit
The order should not be accepted because the basic recovery of cost namely the variable cost; per unit is higher than the additional selling price per unit ; as per the costing principle, variable cost per unit is one which cannot be avoided either for the existing production and sale of units as well as any additional units to be produced and sold.
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