Problem 9-15 Determining Whether to Accept a Special Order and Whether to Make o
ID: 2550723 • Letter: P
Question
Problem 9-15 Determining Whether to Accept a Special Order and Whether to Make or Buy (LO1 - CC4, 5) The Engine Guys produces specialized engines for "snow climber" buses. The company's normal monthly production volume is 5,500 engines, whereas its monthly production capacity is 11,000 engines. The current selling price per engine is $950. The cost per unit of manufacturing and marketing the engines at the normal volume is as follows Costs per Unit for Engines Manufacturing costs $ 94 Direct material Direct labour Variable overhead Fixed overhead 152 152 $ 425 27 Subtotal Marketing costs Variable Fixed $ 48 105 Subtotal 153 Total unit cost 578Explanation / Answer
Incremental Analysis: Incremental reveue (670 units @425 +660,000) 944750 Less: Incremental cost material 62980 Labour 101840 Vraiable MOH 18090 Less: Contribution loss (670 units @ 629) 421430 Net Increase in income 340410 Hence, Yes, offer must be acceted Incremental Analysis: Incremental revenue in form of savings in cost: Materail (2750 units @ 94) 258500 Labour (2750 units @ 152) 418000 Variable OH (2750 units @27) 74250 Variable marketing cost (2750 units @48*40%) 52800 Fixed manufacturing cost (152*5500*20%) 167200 970750 Incremental cost of supplier (2750 units @ 456) 1254000 Net decrease in income -283250 No, offer must not be accepted