Started on Tuesday, 6 March 2018, 8:04 AM State Finished Completed on Tuesday, 6

Question

Started on Tuesday, 6 March 2018, 8:04 AM State Finished Completed on Tuesday, 6 March 2018, 8:04 AM Time taken 25 secs Marks 11.00/12.00 Grade 4.58 out of 5.00 (9296) CLICK HERE TO REVIEW LEARNING OBJECTIVES QUESTION 1 Partially correct Mark 11.00 out of 12.00 P Flag question Special Order Total cost data follow for Glendale Manufacturing Company, which has a normal capacity per period of 8,000 units of product that sell for $60 each. For the foreseeable future, regular sales volume should continue to equal normal capacity. Direct material $100,800 Direct labor 62,400 46,800 Variable manufacturing overhead Fixed manufacturing overhead (Note 1) Selling expense (Note 2) 38,400 35,200 Administrative expense (fixed) 15,000 $298,600 Notes: 1. Beyond normal capacity, fixed overhead costs increase $1,800 for each 500 units or fraction thereof until a maximum capacity of 10,000 units is reached. 2. Selling expenses consist of a 6% sales commission and shipping costs of 80 cents per unit. Glendale pays only three-fourths of the regular sales commission on sales totaling 501 to 1,000 units and only two-thirds the regular commission on sales totaling 1,000 units or more. Glendale's sales manager has received a special order for 1,200 units from a large discount chain at a price of $36 each, F.O.B. factory. The controller's office has furnished the following additional cost data related to the special order: 1. Changes in the product's design will reduce direct material costs $1.50 per unit. 2. Special processing will add 20% to the per-unit direct labor costs. 3. Variable overhead will continue at the same proportion of direct labor costs.

Explanation / Answer

Solution a:

Solution b:

Let lowest price Glendale could receive is X

Required profit = $3,600

Required contribution = $3,600 + $5,400 = $9,000

Required contribution per unit = $9,000 / 1200 = $7.50

Variable cost per unit = $27.48 + $0.04 X (Sales commission)

Now

Sales price = contribution per unit + Variable cost per unit

X = $7.50 + $27.48 + $0.04X

0.96X = $34.98

X = $36.44

Hence lowest selling price to earn profit of $3,600 = $36.44 per unit

Glendale Manufacturing Company - Differential Analysis - Special Order Particulars Per Unit Total Differential Revenue $36.00 $43,200.00 Differential Cost: Direct Material ($100,800/8000 - $1.50) $11.10 Direct Labor ($62,400 / 8000*120%) $9.36 Variable Manufacturing Overhead ($46,800/62400 = 75% of Direct Labor) $7.02 Sales Commission (36*6%*2/3) $1.44 Shipping (FOB Factory Terms) $0.00 Total Variable Cost $28.92 $34,704.00 Contribution Margin from Special Order $8,496.00 Extra Fixed Cost ($1800*3) $5,400.00 Profit on Special Order $3,096.00

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