Norman Concrete Company pours concrete slabs for single-family dwellings. Wayne
ID: 2359498 • Letter: N
Question
Norman Concrete Company pours concrete slabs for single-family dwellings. Wayne Construction Company, which operates outside Norman's normal sales territory, asks Norman to pour 40 slabs for Wayne's new developement of homes. Norman has the capacity to build 300 slabs and is presently working on 250 of them. Wayne is willing to pay only $2500 per slab. Norman estimates the cost of a typical job to include unit-level materials. $1000; unit level labor, $600; and an allocated portion of facility-level over-head, $700. Required: Should Norman accept or reject the special order to pour 40 slabs for $2500 each? support your answer with appropriate computations.Explanation / Answer
Relevant Information for Special Order Slabs
Differential Revenue ($2,500 x 40 units) $100,000
Avoidable unit-level materials ($1,000 x 40 units) (40,000)
Avoidable unit-level labor ($600 x 40 units) (24,000)
Avoidable facility-level overhead ($700 x 40 units) (28,000)
Contribution to income $8,000
Norman should accept the special order for slabs because profits will increase by $8,000.
Relevant Information for Special Order Slabs
Differential Revenue ($2,500 x 40 units) $100,000
Avoidable unit-level materials ($1,000 x 40 units) (40,000)
Avoidable unit-level labor ($600 x 40 units) (24,000)
Avoidable facility-level overhead ($700 x 40 units) (28,000)
Contribution to income $8,000
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