Managerial Accounting: Johnson - Managerial Accounting Online - Spring 2018
Chapter 7 Graded Assignment
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Mohave Corp. makes several varieties of beach umbrellas and accessories. It has been approached by a company called Lost Mine Industries about producing a special order for a custom umbrella called the Ultimate Shade (US). The special-order umbrellas with the Lost Mine Company logo would be distributed to participants at an upcoming convention sponsored by Lost Mine.
Lost Mine has offered to buy 1,900 of the US umbrellas at a price of $15 each. Mohave currently has the excess capacity necessary to accept the offer. The following information is related to the production of the US umbrella:
Direct materials$7.00Direct labor 3.00Variable manufacturing overhead 3.00Fixed manufacturing overhead 2.50Total cost$15.50Regular sales price$23.00
1. Compute the incremental profit (or loss) from accepting the special order.
2. Should Mohave accept the special order?
3. Suppose that the special order had been to purchase 2,400 umbrellas for $10.00 each. Recompute the incremental profit (or loss) from accepting the special order under this scenario.
4. Assume that Mohave is operating at full capacity. Calculate the special-order price per unit at which Mohave would be indifferent between accepting or rejecting the special order.
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WorksheetLearning Objective: 07-02 Define and identify relevant costs and benefits.
Difficulty: 2 MediumLearning Objective: 07-03 Analyze a special-order decision.
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