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QUESTION I-A. 7.5 POINTS
Use the following information to calculate and answer the next 3 questions. (SHOW YOUR WORK)
Taylor Enterprises sells its product for $40 per unit. Taylor recently received a special order from a customer
for 20,000 units. Production costs per unit for regular sales are:
Direct materials
$
6
Direct labour
14
Manufacturing overhead (2/3 variable)
12
1.
Suppose the special order price is $600,000 for all 20,000 units, and assume that Taylor has sufficient
capacity to fill the special order. Should it be accepted?
a.
Yes, because profits will increase by $120,000
b.
No, because profits will decrease by $200,000
c.
No, because profits will decrease by $40,000
d. Yes, because profits will increase by $40,000
e.
None of the above
Total Variable cost per unit = $ 6 + 14 + 8 = $28 X 20,000 units = $560,000 – special order price is
$600,000
=
profit $40,000
2.
Suppose that Taylor would like to earn $50,000 on this order and assume that there is sufficient
capacity to fill the special order. What price per unit should Taylor charge for the special order?
a.
$34.50
b.
$42.50
c. $30.50
d.
$26.50
e.
None of the above
Total Variable costs for 20,000 units = $560,000 + to earn $50,000 on this order / 20,000 =
$30.50
3.
Suppose that the special order price is $600,000 for all 20,000 units, but there is not sufficient
capacity to fill the order; 8,000 units of regular business will be replaced by the special order if it is
accepted. Should Taylor accept the special order? And why?
a. No, because profits will decrease by $56,000
b.
Yes, because profits will increase by $40,000
c.
No, because profits will decrease by $24,000
d.
No, because profits will decrease by $280,000
e.
None of the above
COMM 305 ALL SECTIONS & ACCO 240
Final Exam December 2010
page 2