Question 5A Company A makes carpets. A customer wants to place a special order f

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Question 5A
Company A makes carpets. A customer wants to place a special order for 1,000 carpets in navy blue with the company logo woven in the middle, to be priced at $30 each. Normally, Company A would charge $60 per carpet for this type of order. Stein figures that yarn and backing will cost $12 per carpet, variable overhead (machining, electricity) is $5 per carpet, direct labor is $10 per carpet, and one setup will be required at $800 per setup. The set-up charge costs are 100% labor. Currently, the workers needed to set up for and make the carpets are working at Company A. Their wages will be paid whether or not the special order is accepted. Policy is to avoid layoffs to the extent possible.

Which costs of the special order relate to flexible resources?

a yarn and backing

b yarn, backing and variable overhead

c depreciation on machinery

d yarn, backing, and direct labor

e yarn, backing, direct labor, and setup labor




Question 5B
Company A makes carpets. A customer wants to place a special order for 1,000 carpets in navy blue with the company logo woven in the middle, to be priced at $30 each. Normally, Company A would charge $60 per carpet for this type of order. Company A figures that yarn and backing will cost $12 per carpet, variable overhead (machining, electricity) is $5 per carpet, direct labor is $10 per carpet, and one setup will be required at $800 per setup. The set-up charge costs are 100% labor. Currently, the workers needed to set up for and make the carpets are working at Stein. Their wages will be paid whether or not the special order is accepted. Policy is to avoid layoffs to the extent possible.

Which of the following is a qualitative factor that Stein would consider in making the decision to accept or reject the special order?

a cost of yarn and backing

b cost of setup labor

c the no-layoff policy

d the use of machinery

e the machining and electricity




Question 5C
Company A makes carpets. A customer wants to place a special order for 1,000 carpets in navy blue with the company logo woven in the middle, to be priced at $30 each. Normally, Company A would charge $60 per carpet for this type of order. Company A figures that yarn and backing will cost $12 per carpet, variable overhead (machining, electricity) is $5 per carpet, direct labor is $10 per carpet, and one setup will be required at $800 per setup. The set-up charge costs are 100% labor. Currently, the workers needed to set up for and make the carpets are working at Stein. Their wages will be paid whether or not the special order is accepted. Policy is to avoid layoffs to the extent possible.

Which of the following is irrelevant to the special order decision?

a cost of yarn and backing

b direct labor cost

c machining and electricity cost

d $30 price

e all of these are relevant





Question 5D
Company A makes carpets. A customer wants to place a special order for 1,000 carpets in navy blue with the company logo woven in the middle, to be priced at $30 each. Normally, Company A would charge $60 per carpet for this type of order. Company A figures that yarn and backing will cost $12 per carpet, variable overhead (machining, electricity) is $5 per carpet, direct labor is $10 per carpet, and one setup will be required at $800 per setup. The set-up charge costs are 100% labor. Currently, the workers needed to set up for and make the carpets are working at Stein. Their wages will be paid whether or not the special order is accepted. Policy is to avoid layoffs to the extent possible.

If Company A accepts the special order, by how much will operating income increase or decrease?

a $13,000 increase

b $13,000 decrease

c $3,000 increase

d $3,000 decrease

e there will be no effect on operating income

Explanation / Answer

a Resources acquired as used and needed are termed as flexible resources. Hence, in this case flexible resources would be : a. yarn and backing. b. The qualitative factor that Stein would consider while making the decision would be : c. the no-layoff policy c e. All of these costs are relevant. d Increase in Revenue - 1000* 30 - 30,000 Less : Costs - 1000 * 27                  -   27,000 Increase in Operating Income -       3,000 Hence , the answer is c. 3,000 increase

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