Cost Accounting

Cost Accounting

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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:

1. What is the full cost of the product per unit?
2. What is the contribution margin per unit?
3. Which costs are relevant for making the decision regarding this one-time-only special order? Why?
4. For Parker and Spitzer Manufacturing, what is the minimum acceptable price of this one-time-only special order?
5. 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

1. For each model, compute the contribution margin per unit.
2. For each model, compute the contribution margin per machine-hour.
3. If there is excess capacity, which model is the most profitable to produce? Why?
4. If there is a machine breakdown, which model is the most profitable to produce? Why?
5. 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

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:

1. What is the relevant per unit cost for the original part?
2. 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.

1. 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?

1. 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?