Chapter 04 Fundamenta X Paramount Travel Gear P tpx You did not receive ful cred
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Chapter 04 Fundamenta X Paramount Travel Gear P tpx You did not receive ful credit for this question in a previous 2.38 polnts Sherene Nili manages a company that produces wedding gowns. She produces both a custom product that is made to order and a standard product that is sold in bid salons Her accountant prepared the following forecasted income statement for March, which is a busy month 10 $48,000 5 9600 19,600 560 3,800 1.200 20 $28.000 $ 7.600 8,600 260 2,400 800 Number of dresses Sales revenue $ 17.200 28.200 820 6.200 2,000 2.400 Materials Labor Machine depreciation Rent Heat and light Other production costs Marketing and administraion Total costs Operating prom S 11,880 Ms Nh already has orders for the 10 custom dresses reflected in the March forecasted income statement The depreciation charges are for machines used in the respective product lines Machines depreciate at the rate of $1 per hour based on hours used operate for 820 hours, of which 580 hours will be used to make custom dresses The rent is for the building space, which has been leased for several years at $6,200 per month The rent, heat, and ight are alocated to the product ines based on the amount of hoor space occupied d, so these are variable costs In March, culting and sewing machines are expected to A valued customer, who is a wedding consultant has asked Ms ror a spec al tavor This customer has a chent who wants to get married in early April MS NM's company is workng at capacty and would have to give up some other business to make this diess. She can't renege on custom orders aready agreed lo but she can reduce h no unused capacity for the foreseeable future The customer is witing to pay $23,200 for the special order Materials and labor respectively The special order would require 120 hours of machine tme Ms. Nilr's company would save 1 up Rent heat and light, and other production costs would not be aflected by the special order tunity to make up the lost production of standard dresses because she has 30 hours of machine tme fiom the standard dress business given for the order wil cost $5,600 and $9 600Explanation / Answer
Statement of Profitability If Special Order is Accepted Custom Dresses Standard Dresses Special order Total Total No. of dresses 10 10 1 Revenue 48,000 14,000 23,200 85,200 Materials 9,600 3,800 5,600 19,000 Labor 19,600 4,300 9,600 33,500 Machine Depreciation 560 130 120 810 Total Variable Costs 29,760 8,230 15,320 53,310 Contribution 18,240 5,770 7,880 31,890 Fixed Costs: Rent 6,200 Heat & Light 2,000 Other Production Costs 2,400 Marketing & Administration 7,300 Total Fixed Costs 17,900 Operating Profits 13,990 Answer a-1 Without Special Order With Special Order Impact Increase Decrease Revenue 76,000 85,200 9,200 - Materials 17,200 19,000 1,800 Labor 28,200 33,500 5,300 Machine Depreciation 820 810 10 Contribution Margin 29,780 31,890 9,210 7,100 Rent 6,200 6,200 Heat & Light 2,000 2,000 Other Production Costs 2,400 2,400 Marketing & Administration 7,300 7,300 Operating Profit (Loss) 11,880 13,990 9,210 7,100 Net Increase (Decrease) in Profit 2,110 2,110 Answer a-2. Yes, Nili should accept the order, as it will increase its profit by $2,110. Answer b. Mimimum Price Ms. Nili Should Accept: Revenue from special Order 23,200 Less: Increase in Profit (2,110) Minimum Price 21,090 Minimum Transfer Price should be $21,090, so that Ms. Nili will earns same profits with or without special order.
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