Variable Manufacturing

Good Essays
Grant’s Kitchens is approached by Ms. Tammy Wang, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers. The following per unit data apply for sales to regular customers:

Direct materials $455 Direct labor 300 Variable manufacturing support 45 Fixed manufacturing support 100 Total manufacturing costs 900 Markup (60%) 540 Targeted selling price $1440

Grant’s Kitchens has excess capacity. Ms. Wang wants the cabinets in cherry rather than oak, so direct material costs will increase by $30 per unit.

72. For Grant’s Kitchens, what is the minimum acceptable price of this one-time-only special order? a. $830 b. $930 c. $785 d. $1440

$455 + $300 + $45 + $30 = $830

73. Other than price, what other items should Grant’s Kitchens consider before accepting this one-time-only special order? a. Reaction of shareholders b. Reaction of existing customers to the lower price offered to Ms. Wang c. Demand for cherry cabinets d. Price is the only consideration.

Answer: b

74. If Ms. Wang wanted a long-term commitment for supplying this product, this analysis a. would definitely be different. b. may be different. c. would not be different. d. does not contain enough information to determine if there would be a difference.

Answer: a
75. If there was limited capacity, all of the following amounts would change EXCEPT a. opportunity costs. b. differential costs. c. variable costs. d. the minimum acceptable price.

Answer: c
THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 48 THROUGH 51.
White Corporation manufactures football jerseys and uses budgeted machine-hours to allocate variable manufacturing overhead. The following information pertains to the company 's manufacturing overhead data.

Budgeted output units 20,000 units Budgeted machine-hours 30,000 hours Budgeted variable manufacturing overhead costs for 20,000 units

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