Treasure Island Beach Equipment, Inc., manufactures deluxe beach cabanas in Tamp
ID: 2448125 • Letter: T
Question
Treasure Island Beach Equipment, Inc., manufactures deluxe beach cabanas in Tampa, Florida. Its manufacturing plant has the capacity to produce 2,200 cabanas each month. Current monthly production is 1,650 cabanas. The company normally charges $565 per cabana. Variable costs and fixed costs for the current activity level of 75 percent of capacity are shown in the table below.
Management has just received a special one-time order for 550 cabanas at $340 per cabana. For this particular order, no variable marketing costs will be incurred. Samantha Peters, the assistant controller, has been assigned the task of analyzing this order and recommending whether the company should accept or reject it. After examining the costs, Peters suggested to her supervisor, Katie Maas, who is the controller, that they request competitive bids from vendors for the raw material as the current quote seems high. Maas insisted that the prices are in line with other vendors and told her that she was not to discuss her observations with anyone else. Peters later discovered that Maas is a sister-in-law of the owner of the current raw-material supply vendor.
Current Product Costs
(at 75% of Capacity)
Compute the new average unit cost for (a) current monthly production alone; (b) the special order alone; and (c) total combined production
Treasure Island Beach Equipment, Inc., manufactures deluxe beach cabanas in Tampa, Florida. Its manufacturing plant has the capacity to produce 2,200 cabanas each month. Current monthly production is 1,650 cabanas. The company normally charges $565 per cabana. Variable costs and fixed costs for the current activity level of 75 percent of capacity are shown in the table below.
Management has just received a special one-time order for 550 cabanas at $340 per cabana. For this particular order, no variable marketing costs will be incurred. Samantha Peters, the assistant controller, has been assigned the task of analyzing this order and recommending whether the company should accept or reject it. After examining the costs, Peters suggested to her supervisor, Katie Maas, who is the controller, that they request competitive bids from vendors for the raw material as the current quote seems high. Maas insisted that the prices are in line with other vendors and told her that she was not to discuss her observations with anyone else. Peters later discovered that Maas is a sister-in-law of the owner of the current raw-material supply vendor.
Explanation / Answer
a. Average unit cost for current monthly production alone = total cost / total units = 891,000 / 1,650 = $540 per unit
b. Direct material cost per unit = 206,250 / 1,650 = $125 per unit
Direct labor cost per unit = 231,000 / 1,650 = $140 per unit
Average unit cost for special order alone = 125 + 140 = $265 per unit
c. Total cost of current production = $891,000
Total cost of special order = 265 x 550 = $145,750
Total combine units = 1,650 + 550 = 2,200
Average unit cost for total combined production = (891,000 + 145,750)/2,200 = $471.25 per unit
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