PROBLEM #1 SPECIAL ORDER
Parker and Spitzer Manufacturing is approached by a European customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. The following per unit data apply for sales to regular customers:
Direct materials $66
Direct labor 30
Variable manufacturing support 48
Fixed manufacturing support 104
Total manufacturing costs 248
Markup (50%) 124
Targeted selling price $372
Parker and Spitzer Manufacturing has excess capacity.
a. What is the full cost of the product per unit?
b. What is the contribution margin per unit?
c. Which costs are relevant for making the decision regarding this one-time-only special order? Why?
d. For Parker and Spitzer Manufacturing, what is the minimum acceptable price of this one-time-only special order?
e. For this one-time-only special order, should Parker and Spitzer Manufacturing consider a price of $200 per unit? Why or why not?
PROBLEM #2 SCARCE RESOURCES
25) Ralph’s Mufflers manufactures three different product lines, Model X, Model Y, and Model Z. Considerable market demand exists for all models. The following per unit data apply:
Model X Model Y Model Z
Selling price $160 $180 $200
Direct materials 60 60 60
Direct labor ($20 per hour) 30 30 40
Variable support costs ($10 per machine-hour) 10 20 20
Fixed support costs 40 40 40
a. For each model, compute the contribution margin per unit.
b. For each model, compute the contribution margin per machine-hour.
c. If there is excess capacity, which model is the most profitable to produce? Why?
d. If there is a machine breakdown, which model is the most profitable to produce? Why?
e. How can Ralph encourage her sales people to promote the more profitable model?
PROBLEM #3 MAKE-BUY
Kirkland Company manufactures a part for use in its production of hats. When 10,000 items are produced, the costs per unit are:
Direct materials $0.60
Direct manufacturing labor 3.00
Variable manufacturing overhead 1.20
Fixed manufacturing overhead 1.60
Mike Company has offered to sell to Kirkland Company 10,000 units of the part for $6.00 per unit. The plant facilities could be used to manufacture another item at a savings of $9,000 if Kirkland accepts the offer. In addition, $1.00 per unit of fixed manufacturing overhead on the original item would be eliminated.
a. What is the relevant per unit cost for the original part?
b. Which alternative is best for Kirkland Company? By how much?
PROBLEM #4 COST-PLUS PRICING
Backwoods Incorporated manufactures rustic furniture. The cost accounting system estimates manufacturing costs to be $80 per table, consisting of 70% variable costs and 30% fixed costs. The company has surplus capacity available. It is Backwoods’ policy to add a 50% markup to full costs.
a. Backwoods Incorporated is invited to bid on an order to supply 100 rustic tables. What is the lowest price Backwoods should bid on this one-time-only special order?
b. A large hotel chain is currently expanding and has decided to decorate all new hotels using the rustic style. Backwoods Incorporated is invited to submit a bid to the hotel chain. What is the lowest price per unit Backwoods should bid on this long-term order?