306 - 11 - CostAccounting,13e(Horngrenetal.) Chapter11 1...

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Cost Accounting, 13e (Horngren et al.)  Chapter 11    1
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Decision  Making and  Relevant  Information 196) 
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Silver  Lake  Cabinets  is  approache d by Ms.  Jenny  Zhang, a  new  customer,  to fulfill a  large one - time - only  special  order for  a product  similar to  one  offered to  regular customers. The following per unit data apply for sales to regular customers:  Direct materials $100 Direct labor 125 Variable manufacturing support 60 Fixed manufacturing support 75 Total manufacturing costs 360 Markup (60%) 216 Targeted selling price $576 Silver Lake Cabinets has excess capacity. Ms. Zhang wants the cabinets in cherry rather than oak, so direct material costs  will increase by $30 per unit.  Required:  a. For Silver Lake Cabinets, what is the minimum acceptable price of this one - time - only special order? b. Other than price, what other items should Silver Lake Cabinets consider before accepting this one - time - only special  order? c. How would the analysis differ if there was limited capacity?   Answer:  
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a. $315  =  Variable  costs ($100  +  $125  + $60)  +  $30  additional cost for  cherry. b. Silver Lake  Cabinets should also  consider the impact  on current customers  when these  customers hear that  another customer  was offered a  discounted price, and  the impact on the  competition and if  they might choose to  meet the discounted  price. c. Currently, the  incremental costs  total $315. If  additional capacity is  needed to process  this order, these  incremental costs  will increase by the  cost of adding  capacity.  
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Diff: 3  Terms: 
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one - time - only  special order,  relevant costs  Objective: 
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AACSB: 
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Analytical skills 
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198) 
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ern  Company  needs  1,000  motors in  its  manufact ure of  automobil es. It can  buy the  motors  from Jinx  Motors for $1,250 each. Southwestern's plant can manufacture the motors for the following costs per unit:  Direct materials $ 500 Direct manufacturing labor 250 Variable manufacturing overhead 200 Fixed manufacturing overhead 350 Total $1,300 If Southwestern buys the motors from Jinx, 70% of the fixed manufacturing overhead applied will not be avoided.  Required:  a. Should the company make or buy the motors? b.
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This note was uploaded on 12/11/2009 for the course ACCT 300 taught by Professor Balt during the Spring '08 term at University of Baltimore.

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306 - 11 - CostAccounting,13e(Horngrenetal.) Chapter11 1...

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