m30bchapter8practiceproblemssummer2017WITHSOLUTIONS.docx

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M30B: MANAGERIAL ACCOUTING PRACTICE PROBLEMS: CHAPTER 8 SOLUTIONS SPECIAL ORDER PRICING 1. Harmony Forge manufactures saddles for show horses. The company has received a special order for 290 saddles for an international competition. Each of these saddles would include the specialized logo of the competition. Last year Harmony produced 710 saddles, and the company has the capacity to produce 1,000 saddles per year. Harmony’s saddles normally sell for $650 each, but the special offer is for $179,800 ($620 per saddle). The controller has provided information to management that estimates the variable cost per saddle is $435; fixed manufacturing overhead is $60/saddle. Of the fixed costs assigned to this special order, $15,950 is for the specialized logos, the remainder is attributable to costs that will be incurred regardless of whether the special order is produced. What is the operating income generated by the special order? a. $53,650 b. $37,700 c. $36,250 d. $20,300 Special Order: [($620 – 435) x 290] - $15,950 = $37,700 2. Harmony Forge manufactures saddles for show horses. The company has received a special order for 290 saddles for an international competition. Each of these saddles would include the specialized logo of the competition. Last year Harmony produced 710 saddles, and the company has the capacity to produce 1,000 saddles per year. Harmony’s saddles normally sell for $650 each, but the special offer is for $179,800 ($620 per saddle). The controller has provided information to management that estimates the variable cost per saddle is $435; fixed manufacturing overhead is $60/saddle. Of the fixed costs assigned to this special order, $15,950 is for the specialized logos, the remainder is attributable to costs that will be incurred regardless of whether the special order is produced. What is the operating income generated by the special order? a. $53,650
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b. $37,700 c. $36,250 d. $20,300 Special Order: [($620 – 435) x 290] - $15,950 = $37,700 3. Newport Manufacturing makes and sells backyard fire pits. Each fire pit regularly sells for $269. The following cost data per unit are based on a full capacity of 3,000 fire pits produced each period. Direct material $100 Direct labor $75 Manufacturing overhead (75% variable) $64 Newport is negotiating a special order for the sale of 75 fire pits to an overseas customer who is located in a country that does not have civil liberties for its population. The only selling cost that would be incurred on the special order would be a $10 sales commission. Newport is expected to make 2,500 fire pits before the special order.
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