# ACCOUNTING

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.

Required:

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?

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

Total \$6.40

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.

Required:

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?

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