Faulty Special Order Analysis Please include steps to solve - Thank you X-5. Fau
ID: 2572212 • Letter: F
Question
Faulty Special Order Analysis
Please include steps to solve - Thank you
X-5. Faulty Special Order Analysis The Detroit sales manager of Brolin Manufacturing, Inc. called the home office stating that she could secure a special order involving 3,600,000 gross of Product A if it could be sold for 12.5% off the list price. Management contacted the cost analyst who sent the following analysis to the vice-president in charge of sales with a notation that the profit on this order would be $37,800 C340,200-302,400):Explanation / Answer
Cost analyst considered all the costs in the given case for considering the additional profits which will be derived from special order. Hoever, fixed costs incurred by the company remain the same irrespective of the level of output and therefore are irrelevant cost or remain same.
Calculation of Profits
Particulars
Forecast of 60%
80% Forecast with special order
Rate
Amount
Rate
Amount
Sales Revenue
.14
1,512,000
.14
1,512,000
Special Order
.1225
441,000
Total Revenue
.14
1,512,000
0.135625
1,953,000
Costs:
Direct Materials
.040
432,000
0.040
576,000
Labor
.021
226,800
0.021
302,400
Variable Factory Overheads
0.010
108,000
0.010
144,000
Fixed Factory Overheads (Remains same)
0.020
216,000
216,000/ 14,400,000 = 0.015
216,000
Variable Marketing
0.005
54,000
0.005
72,000
Fixed Marketing
(Remains same)
0.009
97,200
97,200 / 14,400,000 = 0.00675
97,200
Fixed Admin expense
(Remain same)
0.007
75,600
75,600 / 14,400,000 = 0.00525
75,600
Total Cost
0.112
1,209,600
0.103
1,483,200
Profit
0.028
302,400
0.032625
469,800
Particulars
Forecast of 60%
80% Forecast with special order
Rate
Amount
Rate
Amount
Sales Revenue
.14
1,512,000
.14
1,512,000
Special Order
.1225
441,000
Total Revenue
.14
1,512,000
0.135625
1,953,000
Costs:
Direct Materials
.040
432,000
0.040
576,000
Labor
.021
226,800
0.021
302,400
Variable Factory Overheads
0.010
108,000
0.010
144,000
Fixed Factory Overheads (Remains same)
0.020
216,000
216,000/ 14,400,000 = 0.015
216,000
Variable Marketing
0.005
54,000
0.005
72,000
Fixed Marketing
(Remains same)
0.009
97,200
97,200 / 14,400,000 = 0.00675
97,200
Fixed Admin expense
(Remain same)
0.007
75,600
75,600 / 14,400,000 = 0.00525
75,600
Total Cost
0.112
1,209,600
0.103
1,483,200
Profit
0.028
302,400
0.032625
469,800
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