5. Differential analysis: accepting business at a special price Piven Co. manufa

Q: 5. Differential analysis: accepting business at a special price Piven Co. manufa

Solution: Special Order Direct Materials 75 Direct Labor 37 Variable factory overhead 11 Fixed factory overhead Sunk cost Total Manufacturing cost per unit 123 Selling Price 119 Differentail Loss per pair 4 Differential Loss for 815 pairs 3,260 Therefore, differential loss for selling 815 pairs @ 119 per pair will lead to a differential loss of $ 3.260 It should not accept the special order. Therefore answer should be No.

ID: 2451178 • Letter: 5

Question

5. Differential analysis: accepting business at a special price

Piven Co. manufactures gear for hikers and other outdoor enthusiasts. The company is well known throughout California for its hiking boots, which it normally sells for $169 per pair. A new chain of outdoor stores located in the western United States has approached the company about purchasing 815 pairs of hiking boots at a price of $119 per pair. The company's president thinks this is a good opportunity to increase its market share outside of Calfornia. Because the company has excess production capacity, the president is inclined to accept the order.

Piven Co.'s controller pulled the cost sheet for the hiking boots so that the company's vice president of sales could determine whether the special price is acceptable:

Product Cost Sheet

AT60 Hiking Boots

Please complete the following two questions:

A. The vice president of sales thinks the comapny should not sell the hiking boots for less than $138 per pair, because doing so would reduce the company's income. What is the differential income or loss if Piven Co. chooses to accept the order for 815 pairs of boots at the special price of $119 per pair?

B. Should the company accept the special order?

Direct materials $75 Direct labor 37 Variable factory overhead 11 Fixed factory overhead 15 Total cost per pair $138

Explanation / Answer

Solution:

Special Order Direct Materials 75 Direct Labor 37 Variable factory overhead 11 Fixed factory overhead Sunk cost Total Manufacturing cost per unit 123 Selling Price 119 Differentail Loss per pair 4 Differential Loss for 815 pairs 3,260 Therefore, differential loss for selling 815 pairs @ 119 per pair will lead to a differential loss of $ 3.260 It should not accept the special order. Therefore answer should be No.

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5. Differential analysis: accepting business at a special price Piven Co. manufa

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