APPLY THE CONCEPTS: Calculate differential costs in a special order decision Bla

Question

APPLY THE CONCEPTS: Calculate differential costs in a special order decision

Blanche Corporation currently produces and sells 15,000 soccer balls per month at a price of $15. All sales are made in the United States. Its factory is capable of producing 20,000 soccer balls per month.

A European retail store has recently contacted Blanche Corporation and offered to buy 4,000 soccer balls at $8 each. If the offer is accepted, the sale is not expected to have any effect on the current level of sales or the current selling price in the United States.

Explanation / Answer

Since, Blanche corporation has excess manufacturing capacity, extra cost like Fixed Factory Overhead and Commision won't occur.

Therefore, per unit manufacturing cost = 2 (direct material) + 3.25 (direct labor) + 1.75 (Variable factory overhead) + 1.5 (shipping) + 0.25(Packaging) = $8.75

Answer to Part 2:

The Blanche Corporation should reject teh Order, as he net Income will decrease by $ 3.75 per unit

Particulars Accept Reject Effect on INcome Revenue 8 15 -7 Direct Materials 2 2 Direct Labour 3.25 3.25 Variable Factory Overhead 1.75 1.75 Shipping 1.5 1.5 Packing 0.25 0.25 Selling Commission 0 1 Fixed Factory Overhead 0 2.25 Income/Loss -0.75 3 -3.75

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

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