Chapter7 PaperPro produces a line of executive staplers, which it sells for each

Question

Chapter7 PaperPro produces a line of executive staplers, which it sells for each. Given below are the budgeted per unit manufacturing costs assuming that the number of units to be produced is 11.50 7,800 Direct materials Direct labor Factory overhead (70% variable) 2.50 1.40 4.40 0 PaperPro has received an order from a new customer who wants to buy 1,500 Executive staplers. The customer is willing to pay S10.00 per stapler but also requires its logo imprinted on each stapler. The logo imprint will cost $0.40 per stapler 2 6 In each of the following scenarios provide the relevant costs for the total special order (1,500 units). Ignore all marketing costs for this exercise 9 Part A PaperPro has an annual capacity of 10,500 Executive Staplers Materials Labor Incremental costs Opportunity costs Total special order cost 2 4 9 PartB 0 PaperPro has an annual capacity of 8,500 Executive Staplers Materials Labor Incremental costs Opportunity costs Total special order cost $2 6

Explanation / Answer

Part A: Statement of relevant cost:

Materials = 1500*2.5 = $3750

Labor = 1500*1.4 = $2100

factory OH = 4.4*.30*1500 = $1980

Incremental costs = 1500*.4 = $600

opportunity costs = nil since thereis spare capacity

Total relevant costs = $8,430

Part B:

Materials = 1500*2.5 = $3750

Labor = 1500*1.4 = $2100

factory OH = 4.4*.30*1500 = $1980

Incremental costs = 1500*.4 = $600

Opportunity costs = 800*(11.50-5.22) = $5024

Total cost = $13,454

Since there is spare capacity for 700 units, contribuiion losst on 800 units will be considered as opportunity cost

looking forward to your upvote.

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