Problem 13-24 Effect of order quantity on special order decision LO 13-2 Frankli
ID: 2338121 • Letter: P
Question
Problem 13-24 Effect of order quantity on special order decision LO 13-2 Franklin Quilting Company makes blankets that it markets through a variety of department stores. It makes the blankets in batches of 3,500 units. Franklin made 35,000 blankets during the prior accounting period. The cost of producing the blankets is summarized here. Materials cost ($28 per unit x 35,000) Labor cost (S26 per unit x 35,000) Manufacturing supplies (S4 x 35, 000) Batch-level costs (10 batches at $7,000 per batch) Product-level costs Facility-level costs Total costs $980,000 910,000 140,000 70, 000 220,000 320,000 $2,640,000 Cost per unit $2,640,00035, 000 $75.4 Required o. Sunny Motels has offered to buy a batch of 500 blankets for $64 each. Franklin'3normal selling price is $93 per unit. Calcul relevant cost per unit for the special order. Based on the preceding quantitative data, should Franklin accept the sp Franklin accept the special order? b. Sunny offered to buy a batch of 3,500 blankets for $64 per unit, calcu late the relevant cost per unit for the special order. ShouldExplanation / Answer
Answer to Part a:
Calculation of Relevant Cost:
Material Cost ($28 * 500)
$14,000
Labor Cost ($26 * 500)
$13,000
Manufacturing Supplies ($4 * 500)
$2,000
Batch Level Costs (1 Batch * $7,000)
$7,000
Total Product Cost
$36,000
Relevant Cost per Unit = 36,000 / 500
Relevant Cost per Unit = $72
Franklin’s should reject the offer, as the Relevant Cost of Product is more than the offered price of $64.
Note:
The product-level and facility-level costs are not avoidable because they will be incurred regardless of whether the special order is accepted.
Answer to Part b:
Calculation of Relevant Cost:
Material Cost ($28 * 3,500)
$98,000
Labor Cost ($26 * 3,500)
$91,000
Manufacturing Supplies ($4 * 3,500)
$14,000
Batch Level Costs (1 Batch * $7,000)
$7,000
Total Product Cost
$210,000
Relevant Cost per Unit = 210,000 / 3,500
Relevant Cost per Unit = $60
Franklin’s should accept the offer, as the Relevant Cost of Product is less than the offered price of $64.
Note:
The product-level and facility-level costs are not avoidable because they will be incurred regardless of whether the special order is accepted. Whereas, Batch Level Cost are incurred on the basis of batch comprising of 3,500 Units. So, Only charges for 1 batch will be charged.
Material Cost ($28 * 500)
$14,000
Labor Cost ($26 * 500)
$13,000
Manufacturing Supplies ($4 * 500)
$2,000
Batch Level Costs (1 Batch * $7,000)
$7,000
Total Product Cost
$36,000