Cost Accounting - Special Order Decisions Please help answer the (2) blanks with
ID: 2425699 • Letter: C
Question
Cost Accounting - Special Order Decisions
Please help answer the (2) blanks with shown work. Thanks Kindly!
Example: Ellis Company makes boxed stationery and has capacity for 100,000 boxes. Currently, Ellis is producing 80,000 boxes. Information on price and costs is as follows:
Round intermediate calculations to the nearest cent. Use rounded answers in subsequent computations, if required.
A gift store chain recently came to Ellis Company and asked to have 10,400 boxes of stationery printed at a price of $1.92 per box. If Ellis Company accepts the special order, operating income will be $ **BLANK** higher
Now suppose that the gift store chain requires that a special imprinted seal must be put on each box. Direct materials will increase by $0.07 per box and Ellis can rent the machinery to imprint the seals for $2,149. If Ellis Company accepts the special order with this new requirement, operating income will be $ **BLANK** lower
Price $2.48 Direct materials $0.77 Direct labor 0.74 Variable overhead 0.17 Fixed overhead* 1.10 *Fixed overhead is based on capacity of 100,000 boxes.Explanation / Answer
Given
Fixed overhead = 1.10*100,000
=$110,000.-------(G)
Contribution earned on sale of 80,000 boxes =80,000* 0.80
=$64,000. (H)
Net loss on sale of 80,000 boxes = H-G
=$64,000 - $110,000
=-$46,000.
Revised contribution = selling price of the order - Current variable cost
=$1.92 -$1.68
=$0.24.
So, on accepting new order, the loss would come down by 10,400 * 0.24
=$2,496.
If the variable cost increases revised contribution would be =Contribution already arrived - Increase in direct material cost. i.e., $0.80 - $0.07
=$0.73.
Therefore, revised contribution on sale of 80,000 boxes = $0.73*80,000
=$58,400.
increase in fixed cost due to taking equipment on rent =$2,149.
Revised fixed cost =$110,000+$2,149.
=$112,149.
Revised operating income = Revised contribution - Revised fixex costs
=$58,400 - $112,149
=-$53,749.
Increase in loss = -$46,000 - (-53,749)
=$7,749.
Particulars Amount Price(A) $2.48 Direct materials (B) $0.77 Direct labor (C ) $0.74 Variable overhead (D) $0.17 Total variable cost E=B+C+D $1.68 Contribution F=A-E $0.80