Special Order Total cost data follow for Greenfield Manufacturing Company, which

Question

Special Order Total cost data follow for Greenfield Manufacturing Company, which has a normal capacity per period of 20,000 units of product that sell for $54 each. For the foreseeable future, regular sales volume should continue to equal normal capacity. Direct material $268,800 Direct labor 202,000 Variable manufacturing overhead 154,000 Fixed manufacturing overhead (Note 1) 118,800 Selling expense (Note 2) 129,600 Administrative expense (fixed) 50,000 $923,200 Notes: 1. Beyond normal capacity, fixed overhead costs increase $4,500 for each 1,000 units or fraction thereof until a maximum capacity of 24,000 units is reached. 2. Selling expenses consist of a 10% sales commission and shipping costs of $1 per unit. Greenfield pays only one-half of the regular sales commission rates on sales amounting to $3,000 or more. Greenfield's sales manager has received a special order for 2,500 units from a large discount chain at a price of $44 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 by $4 per unit. 2. Special processing will add 10% to the per-unit direct labor costs. 3. Variable overhead will continue at the same proportion of direct labor costs. 4. Other costs should not be affected. a. Present an analysis supporting a decision to accept or reject the special order. (Round computations to the nearest cent.) Differential Analysis Per Unit Total Differential revenue $ Answer Differential costs Direct material $ Answer Direct labor Answer Variable manufacturing overhead Answer Selling: Commission Answer Shipping (F.O.B. factory terms) Answer Total variable cost $ Answer Answer Contribution margin from special order Answer Fixed cost increment: Extra cost Answer Profit on special order $ Answer b. What is the lowest price Greenfield could receive and still make a profit of $5,000 before income taxes on the special order? Round answer to two decimal places, if applicable. $ Answer

Explanation / Answer

Given data:

Direct material =268800

Direct lobor   =202000

Manufacturing over head = 154000

Administrative expenses = 50000

Capacity period = 20000 ect

Requried :

1.Differential analysis?

2.Selling price for selling order calculation?

Solution:

1.Differential analysis:

Detail explanation                             per unit                     Total Amt

Differential revenue                              --- ---

Differential costs                                    --- ---

Direct material : 9.44 ---

          = 268800 / 20000 – 4                      

          =13.44 – 4

          =9.44

Direct labor :                                          10.2 ---

          =202000 / 20000 + 10%

          =10.1 + 10%

          =10.1 + 10/100

          =10.1 + 0.1

          =10.2

Variable manufacturing:                             7.8 ---

          = 154,000 / 20000 +10%

          =7.7 + 10%

          = 7.7 +10/100

          =7.7 +0.1

          =7.8

Selling expense; nil     

Commission :                                             2.2 ---

=44 * 0.05

=2.2                     

Shipping (FOB) : NIL

Total variable cost                                     29.64                    78050                                              

Contribution margin from 31950

Cost increment --

Extra cost   (4500 *3) 13500

Profit on special order 18450

2.Selling price for selling order calculation:

Particulars    Amount

Direct Material 23600

Direct lobor 27775

Fixed cost 11250

Profit 5000

Variable manufacturing 21175

Total sales 88800

special orderUnits 2500

Therefore Total sales / special order

= 888000 / 2500

= 35.32

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