1. The Clock Builder makes grandfather clock kits that it sells to hobbyists who then assemble and finish the clocks. The company has the capacity to make 5,000 of the clocks, and its current volume is 3,000 kits. The costs to make a clock kit are: $300 for unit-level materials, $200 for unit-level labor, and $250 for an allocation of facility-level overhead. The normal selling price is $950. The Clock Builder has received a special order for 800 clock kits at a price of $720 each. Should The Clock Builder accept the special order? Support your answer with appropriate computations.
2. Dress for Success produces a man's suit that sells for $200. Although the company's production capacity is 3,000 suits per year, only 2,500 suits are currently being produced and sold. At this level of production, the company incurs the following costs:
Unit-level material cost per suit $80
Unit-level labor cost per suit $40
Unit-level overhead per suit $20
Batch-level set-up cost for each batch of 500 suits $1,200
Annual product-level costs $15,000
Allocated facility-level costs $50,000
BizDress has offered to purchase 500 suits as a one-time special purchase at a price of $140. Prepare a quantitative analysis that indicates whether the special order should be accepted.
1. The special order should be accepted if the Price is more than the relevant cost.
Here Price is $720.
Relevant cost = Unit level costs and ...
The expert examines clock builders and dress for success. A quantitative analysis that indicates whether the special order should be accepted is determined.