80. CoolAir Corporation manufactures portable window air conditioners. CoolAir
has the capacity to manufacture and sell 80,000 air conditioners each year but
is currently only manufacturing and selling 60,000. The foll
...
80. CoolAir Corporation manufactures portable window air conditioners. CoolAir
has the capacity to manufacture and sell 80,000 air conditioners each year but
is currently only manufacturing and selling 60,000. The following per unit
numbers relate to annual operations at 60,000 units:
Per Unit
Selling price $125
Manufacturing costs:
Variable $25
Fixed $40
Selling and administrative costs:
Variable $10
Fixed $15
The City of Clearwater would like to purchase 3,000 air conditioners from
CoolAir but only if they can get them for $75 each. Variable selling and
administrative costs on this special order will drop down to $2 per unit. This
special order will not affect the 60,000 regular sales and it will not affect
the total fixed costs. The annual financial advantage (disadvantage) for the
company as a result of accepting this special order from the City of Clearwater
should be:
A) ($21,000)
B) $24,000
C) $144,000
D) ($129,000)
Difficulty: 2 Medium
Learning Objective: 12-04
Topic Area:
Bloom s: Apply �
AACSB: Analytic
AICPA: BB Critical Thinking
AICPA: FN Measurement
Feedback:
Incremental revenue (3,000 units $75 per unit) � $225,000
Less incremental costs:
Variable manufacturing cost (3,000 units $25 per unit) � 75,000
Variable selling and administrative cost (3,000 units $2 per unit) �
6,000
Total incremental cost 81,100
Financial advantage (disadvantage) $144,000
[QUESTION]
81. A customer has requested that Lewelling Corporation fill a special order for
9,000 units of product S47 for $20.50 a unit. While the product would be
modified slightly for the special order, product S47's normal unit product cost
is $14.40:
Direct materials $ 3.10
Direct labor 1.50
Variable manufacturing overhead 6.40
Fixed manufacturing overhead 3.40
Unit product cost $14.40
Assume that direct labor is a variable cost. The special order would have no
effect on the company's total fixed manufacturing overhead costs. The customer
would like modifications made to product S47 that would increase the variable
costs by $5.00 per unit and that would require an investment of $36,000 in
special molds that would have no salvage value. This special order would have no
effect on the company's other sales. The company has ample spare capacity for
producing the special order. The annual financial advantage (disadvantage) for
the company as a result of accepting this special order should be:
A) $(9,900)
B) $4,500
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