Mohave Corp. makes several varieties of beach umbrellas and accessories. It has

Question

Mohave Corp. makes several varieties of beach umbrellas and accessories. It has been approached by a company called Lost Mine Industries about producing a special order for a custom umbrella called the Ultimate Shade (US). The special-order umbrellas with the Lost Mine Company logo would be distributed to participants at an upcoming convention sponsored by Lost Mine. Lost Mine has offered to buy 2,000 of the US umbrellas at a price of $16 each. Mohave currently has the excess capacity necessary to accept the offer. The following information is related to the production of the US umbrella: Direct materials Direct labor S 7.00 3.00 3.50 Fixed manufacturing overhead Total cost Regular sales price S16.00 S24.00 Required: 1. Compute the incremental profit (or loss) from accepting the special order r Loss by 2. Should Mohave accept the special order? No Yes 3. Suppose that the special order had been to purchase 2,500 umbrellas for $12.00 each. Recompute the incremental profit (or loss) from accepting the special order under this scenario. or Loss) by 4. Assume that Mohave is operating at full capacity. Calculate the special-order price per unit at which Mohave would be indifferent between accepting or rejecting the special order Order Price per Unit

Explanation / Answer

Requirement 1 Incremental profit (or loss) from accepting the special order Direct Materials 7.00 Direct Labor 3.00 Variable Manufacturing overhead 3.50 Total Cost 13.50 Special offer price 16.00 Profit 2.50 Number of Units          2,000 Incremetal profit by accepting order          5,000 Note: Fixed manufacturing overheads is irrelevant if company having excess capacity Requirement 2 Yes, Accept the special order Requirement 3 Direct Materials 7.00 Direct Labor 3.00 Variable Manufacturing overhead 3.50 Total Cost 13.50 Special offer price 12.00 Profit -1.50 Number of Units          2,500 Incremetal loss by accepting order       (3,750) Requirement 4 Special order price at which Mohave would be indifferent between accepting or rejecting the special order Direct Materials 7.00 Direct Labor 3.00 Variable Manufacturing overhead 3.50 Fixed Manufacturing overhead 2.50 Total Cost 16.00 Special order price 16.00 per unit Note: Fixed manufacturing overheads is irrelevant if company is operating at full capacity

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

---

---

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