B8 MULTIPLE CHOICE 12-35 Stein Company makes carpets. A customer wants to place

Question

B8 MULTIPLE CHOICE 12-35 Stein Company 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, Stein 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. 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. Stein's policy is to avoid layoffs to the extent possible. If Stein accepts the special order, by how much will operating income increase or decrease? Oa. there will be no effect on operating income Ob. $3,000 increase Oc, $3,000 decrease Od. $13,000 decrease Oe. $13,000 increase

Explanation / Answer

28. Option "b" is the answer i.e. Operating income will increase by $13000.

Operating income = (30×1000) - (12×1000) - (5×1000) = $13000

Direct labor cost hasn't been considered since workers will be paid anyhow, it isn't job related specific cost. Also, setup cost isn't considered since a setup is already in place.

30. Contribution margin per hour of machine cost = $8 ÷ 0.25 hours = $32

Note - contribution margin per unit = $8, a single unit requires 0.25 hours, therefore, a total of 4 units can be made in an hour which equals to $8×4 units = $32.

31. Contribution margin per machine hour = $12 ÷ 0.5 hours = $24.

Note - contribution margin per unit is $12, a single unit requires 0.5 machine hours, therefore, in an hour 2 units can be completed. Which is equal to $12 × 2 units = $24.

32. Option "d" is the answer as contribution margin is the highest in it. 40000 × 8 = $320000 compared to the rest.

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.