This preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
Unformatted text preview: C ASE EXERC ISE 2. COST ANALYSIS. QUESTION 1. Calculate the incremental, or marginal, cost per chair to leisure products of accepting the order f rom Southeast? SOLUTION. INCREMENTAL COST: all variable cost in the production process of a good. From t his case exercise, only direst labor and materials are overhead cost. Therefore, I ncremental Cost = $2.25+$2.30 =$4.55 QUESTION 2. W hat assumptions did you make in calculating the incremental cost in Question 1? W hat additional information would be helpful in making these calculations? SOLUTION. My assumptions in calculating question 1 is that the whole plant overhead amount of $1.15 is f ixed, this cannot be in real sense as a certain percentage of i t is suppose to be fixed, and the Remaining percentage, variable. Additional information that would be helpful in making these calculations, includes:  All administrative and selling expenses. QUESTION 3. Based on your answers to question 1 & 2, should leisure products accept the southeast order? SOLUTION. In answering this question, more information as regards variable overhead cost is necessary. B ut notwithstanding, if i t’s less than $0.95, then we should accept the order. $5.50$4.55 =$0.95 QUESTION 4. What additional considerations might lead leisure products to reject the order? SOLUTION. Additional Considerations:  Consequences in the future market should other fi rms find out that i ts selling at the p rice of $5.50, they might want to buy at the same price which can lead to a loss. ...
View
Full Document
 Fall '10
 clovey
 Calculation, Leisure Products

Click to edit the document details