Problem 9-15 Determining Whether to Accept a Special Order and Whether to Make o
ID: 2550728 • Letter: P
Question
Problem 9-15 Determining Whether to Accept a Special Order and Whether to Make or Buy (L01 - CC4, 5) The Engine Guys produces specialized engines for "snow climber" buses. The company's normal monthly production volume is 3,000 engines, whereas its monthly production capacity is 6,000 engines. The current selling price per engine is $700. The cost per unit of manufacturing and marketing the engines at the normal volume is as follows Costs per Unit for Engines Manufacturing costs Direct materials Direct labour Variable overhead Fixed overhead 112 112 330 Subtotal Marketing costs $ 35 Variable Fixed Subtotal 112 Total unit cost $ 442Explanation / Answer
1-
At normal situation
At nornal situation
Special order
sales revenue
620*700
434000
(330*620) +360000
564600
less total cost
620*442
274040
620*330
204600
profit
159960
360000
Incremental profit
360000-159960
200040
2-Yes special order should be accepted
3-
Buy 1500 units and make 1500 units
Buy 1500 units and make 1500 units
Make 3000 units
Make 3000 units
purchase cost
1500*336
504000
0
0
variable manufacturing
1500*218
327000
3000*218
654000
fixed manufacturing
1500*(112*0.8)
134400
3000*112
336000
variable marketing
1500*(35*0.65)
34125
3000*35
105000
fixed marketing
1500*77
115500
3000*77
231000
cost of option
1115025
1326000
difference in favor of making option
-210975
4-yes offer should be accepted
As make 1500 and buy 1500 will result In saving in cost of 210975
1-
At normal situation
At nornal situation
Special order
sales revenue
620*700
434000
(330*620) +360000
564600
less total cost
620*442
274040
620*330
204600
profit
159960
360000
Incremental profit
360000-159960
200040
2-Yes special order should be accepted
3-
Buy 1500 units and make 1500 units
Buy 1500 units and make 1500 units
Make 3000 units
Make 3000 units
purchase cost
1500*336
504000
0
0
variable manufacturing
1500*218
327000
3000*218
654000
fixed manufacturing
1500*(112*0.8)
134400
3000*112
336000
variable marketing
1500*(35*0.65)
34125
3000*35
105000
fixed marketing
1500*77
115500
3000*77
231000
cost of option
1115025
1326000
difference in favor of making option
-210975
4-yes offer should be accepted
As make 1500 and buy 1500 will result In saving in cost of 210975