Special Sales Orders for John Inc.
Not what you're looking for?
I need to understand this problem.
Accept special sales orders? John Inc. is presently operating at 50% capacity and manufacturing 50,000 units of a patented electronic component. The cost structure of the component is as follows.
Raw material $ 1.50 per unit
Direct Labor 1.50 per unit
Variable Overhead 2.00 per unit
Fixed Overhead $ 1.00.000 per year
A Mexican firm has offered to purchase 30,000 0f the components at a price of $6 per unit, the normal selling price is $8 per component. This special offer will not affect any of John Inc,s normal business. Management calculated that the cost per component is $7 so it is reluctant to accept this special order.
a) Show how management came up with a cost of $7 per unit for this component.
b) Evaluate this cost calculation. Explain why it is or is not appropriate.
c) Should the offer from the Mexican firm be accepted? Why or Why not?
Purchase this Solution
Solution Summary
This solution discusses the cost structure of John Inc. and evaluates the special sales orders.
Solution Preview
The solution is provided in a separate excel file attached.
It contains the following statement for complete analysis of problem and recommendations regarding special orders.
(A) Statement showing cost per unit
(B) ...
Purchase this Solution
Free BrainMass Quizzes
Balance Sheet
The Fundamental Classified Balance Sheet. What to know to make it easy.
Cost Concepts: Analyzing Costs in Managerial Accounting
This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.
Understanding Management
This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.
Learning Lean
This quiz will help you understand the basic concepts of Lean.
Social Media: Pinterest
This quiz introduces basic concepts of Pinterest social media