Problem 2 (25 points) the Klassic Clothing Company started working on a special

Question

Problem 2 (25 points) the Klassic Clothing Company started working on a special order of fall suits ordered by Winston's, a regional chain of specialty stores in the southeast United States. Winston's agreed to pay $800,000 for the suits. When the order was nearly finished, there was a complete management change in Winston's, and the buyer who had ordered from Klassic was replaced. The new buyer wanted the fall clothes to reflect only her own taste, and she canceled the order from Kalssic. The president of Klassic called other firms in an effort to sell the suits and got an offer of $536,000. The sales manager frantical offer. Redburns, a group of stores in the Northeast, offered $600,000 for the suits if some distinctive buttons and more expensive trim could be added. ly called other companies to try to get a better In order to decide what to do, the sales manager got the following information about the order from the production manager Materials Direct labor (24,500 bours@$$.50) Factory overhead@$11 per hour Costs to Date si 19,850 134,750 265,400 Total The factory overhead rate includes $4.40 variable overhead and S6.60 fixed overhead. The production manager made the following estimates of the costs necessary to finish the order: Original Order $15,500 2,600 Redburns' Offer Materials Direct labor hours S34,600 6,300 Required a. What is the full cost of the job if the order is completed according to the original specifications? (2) the order is completed according to Redburns' specifications? 1) b. Which offer should the president accept? In your own words defend your answer.

Explanation / Answer

ans a 1) Full cost of the job according to original order Material (119850+15500) 135350 Direct labor (134750+(2600*5.5)) 149050 Factory overhead 276840 Full cost of the job 561240 working original Factory overhead Variable (24500*4.4) 107800 Fixed (265400-107800) 157600 Additional Variable (2600*4.4) 11440 Fixed will remain same Total 276840 Full cost of the job according to Redburn order Material (119850+34600) 465850 Direct labor (134750+(6300*5.5)) 169400 Factory overhead 293120 Full cost of the job 928370 working original Factory overhead Variable (24500*4.4) 107800 Fixed (265400-107800) 157600 Additional Variable (6300*4.4) 27720 Fixed will remain same Total 293120 ans b Incremental revenue if Redburn is accepted 64000 (600000-536000) Less: Additional Direct material (34600-15500) -19100 Less: Additional Direct labor -20350 (6300-2600)*5.5 Less: Additional variable overhead -16280 (6300-2600)*4.4 Incremental profit 8270 Its better to accept Redburn order than selling to to other firms as there is incremental profit of $8270 Dear student I have done the first question.

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