- This topic has 1 reply, 2 voices, and was last updated 5 years ago by
.
- Posts
A company produces and selling sports bicycles at a standard price of $250,000 each. The cost per bicycle is as follows;
Direct materials 86,000
Direct labor 45,000
manufacturing overhead 51,000
production cost per bicycle 182,000
The variable portion of the above manufacturing overhead is 6,000 per bicycle. The company has received a special order from a sports club to supply them with 100 specially modified bikes at a price of $180,000. The order would have no effect on the company’s total fixed manufacturing overhead costs. The modifications to the bikes consists of welded brackets to hold radios, handcuffs and other gears. These modifications would require addition $17,000 per bike in incremental variable costs. In addition, the company would have to pay a graphic design studio $1,200,000 to design and cut stencils that would be used for putting the logo of the club and other identifying marks on the bikes.
The order should have no effect on the company’s other sales. The production manager says that she can handle the special order without disrupting any of the regular scheduled production.should the company accept the special order or not?
There is no point in simply typing out a test question and expecting to be provided with a full answer.
You must have an answer in the same book in which you found the question, so ask about whatever you are not clear about in the answer and then I will explain.
I do assume that you have watched my free lectures on relevant costing?
- The topic ‘short term decision making’ is closed to new replies.