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Lab+Week+4+Problem - Of this amount $100,000 is fixed Of...

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Thousand Islands Company produces a variety of electric trolling motors. Management follows a pricing policy of manufacturing cost plus 60 percent. In response to a request from Northern Sporting Goods, the following price has been developed for an order of 300 Minnow Motors (the smallest motor Thousand Island Produces): Manufacturing costs Direct materials $10,000 Direct labor 12,000 Factory overhead 18,000 Total $40,000 Markup (60%) 24,000 Selling price $64,000 Mr. Bass, the president of Northern Sporting Goods, rejected this price and offered to purchase the 300 Minnow Motors at a price of $44,000. The following additional information is available: Thousand Islands has sufficient excess capacity to produce the motors. Factory overhead is applied on the basis of direct labor dollars. Budgeted factory overhead is $400,000 for the current year.
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Unformatted text preview: Of this amount, $100,000 is fixed. Of the $18,000 of factory overhead assigned to the Minnow Motors, only $13,500 is driven by the special order; $4,500 is a facility-level cost. • Selling and administrative expenses are budgeted as follows: Fixed $90,000 per year (facility level) Variable $20 per unit manufactured and sold Required: 1. The president of Thousand Islands wants to know if he should allow Mr. Bass to have the Minnows for $44,000. Determine the effects on profits of accepting Mr. Bass’s offer. 2. Briefly explain why certain costs should be omitted from the analysis in requirement (a). 3. Assume Thousand Islands is operating at capacity and could sell the 300 Minnows at its regular markup....
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