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Relevant%20Costing%20Problems_breakout_Solutions[1] -...

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ACC240 RELEVANT COSTING PROBLEMS- Solutions Karen Geiger, the general manager of Feelings Company, was agonizing over an offer for an order requesting 7,000 boxes of birthday cards. Feelings was operating at 70 percent of its capacity and had sufficient capacity to fill the order . Unfortunately, the order’s offering price of $7.75 per box was below the normal sales price of $12 per box. The full cost to produce a box of birthday cards is presented below: Direct Materials $2.00 Relevant Direct Labor 3.00 Relevant Variable Manufacturing Overhead 1.50 Relevant Fixed Overhead 2.50 Total $9.00 The order is from a customer in a region not ordinarily serviced by the company. No variable selling or administrative expenses would be associated with the order. Should Karen accept the special order if her goal is to maximize short-run profits? How much will operating income be affected? $7.75 – ($2 + 3 +1.50) = $1.25 * 7,000 = $8,750 Increase The Roland Corporation manufactures a single product with the following full unit costs at a volume of 2,000 units: Direct materials $400 Relevant Direct labor $160 Relevant Manufacturing overhead (30% variable) $300 * 30% = $90 Relevant Selling expenses (50% variable) $150 NOT Relevant Administrative expenses (10% variable) $140 * 10% = $14 Relevant Total per unit $1,150 TOTAL RELEVANT COSTS = $664 A company recently approached Roland Corporation about buying 200 units for $850 . Roland currently sells the models to dealers for $1,300. Roland Corporation's capacity is sufficient to produce the extra 200 units. No selling expenses would be incurred on the special order. How much will income change if Roland accepts the special order? $ 850- $664 = $186 * 200 = $37,200 (INCREASE)
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The Arwa Corporation manufactures 5,000 telephones per year. The full manufacturing costs per telephone are as follows: Direct materials $2 Direct labor $8 Variable manufacturing overhead $5 Average fixed manufacturing overhead $5 Total $20 The Telecommunications Company has offered to sell Arwa 5,000 telephones for $17 per unit. If
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