Fanning Quilting Company makes blankets that it markets through a variety of dep
ID: 2595147 • Letter: F
Question
Fanning Quilting Company makes blankets that it markets through a variety of department stores. makes the blankets in batches of 2,500 units. Fanning made 25,000 blankets during the prior accounting period. The cost of producing the blankets is summarized here Materials cost ($25 per unit x 25,000) Labor cost ($20 per unit 25,0e0) Manufacturing supplies ($3 × 25,000) Batch-level costs (10 batches at $5,000 per batch) Product-level costs Facility-level costs Total costs cost per unit $1,790,000 ÷ 25,000- $71.6 $ 625,000 500,000 75,000 50,000 240,000 300,000 $1,790,000 Required a. Sunny Motels has offered to buy a batch of 500 blankets for $55 each. Fanning's normal selling price is $98 per unit. Calculate the relevant cost per unit for the special order. Based on the preceding quantitative data, should Fanning accept the special order? b. Sunny offered to buy a batch of 2,500 blankets for $55 per unit, calculate the relevant cost per unit for the special order. Should Fanning accept the special order? (For all requirements, round "Cost per unit" to 2 decimal places.) a. Cost per unit Should Fanning accept the special order? b. Cost per unit Should Fanning accept the special order?Explanation / Answer
Note : In case of Special order , regular fixed costs are not a revelant cost thus in the present case both Product level cost & Facility level cost are not to be consider for computing relevant cost per unit of special order.
Answer a
Note : Batch-level costs will incure for the whole batch of 2,500 units , even if the special order is for lesser units than per batch units.
Relevant cost for 500 Blankets
Relevant cost per unit for special order of 500 blankets = $29,000 / 500 = $58 per unit
Decision : No, Fenninf should not accept the special order . Since the selling price per unit is $55 but the cost per unit is $58 therefore the company will incuure loss of $3 per unit if the special order is accepted.
Answer b
Relevant cost for 2,500 Blankets
Relevant cost per unit for special order of 2,500 Blankets = $125,000 / 2,500 = $50 per unit
Decision : Yes, Fenninf should accept the special order . Since the selling price per unit is $55 but the cost per unit is $50, therefore the company will incuure profit of $5 per unit if the special order is accepted
particular Amount ($) Materials cost ($25 per unit * 500 ) 12,500 Labor cost ($20 per unit * 500 ) 10,000 Manufacturing supplies ($3 per unit * 500 ) 1,500 Batch-level costs (1 batch *$5,000 ) 5,000 Total costs 29,000Related Questions
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