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Accept the special order

1. Ellis Quilting company makes blankets that it markets through a variety of departments stores. Problem: 13-23 Effects of order quality on special order decision
Ellis Quilting Company makes blankets that it markets through a variety of department stores. It makes the blankets in batches of 1,000 units. Ellis made 20,000 blankets during the prior accounting period. The cost of producing the blankets is summarized here.
Material cost ($25 per unit x 20,000) $ 500,000
Labor cost ($22 per unit x 20,000) 440,000
Manufacturing supplies ($2 x 20,000) 40,000
Batch-level costs (20 batches at $4,000 per batch) 80,000
Product-level costs 160,000
Facility-level costs 290,000
Total costs $1,510,000
Cost per unit = $1,510,000/20,000 = $75.50

Required:
1. Kent Motels has offered to buy a batch of 500 blankets for $56 each. Ellis's normal selling price is $90 per unit. Based on the preceding quantitative data, should Ellis accept the special order? Support your answer with appropriate computations.
2. Would your answer to Requirements a change if Kent offered to buy a batch of 1,000 blankets for $56 per unity? Support your answer with appropriate computations.
3. Describe the qualitative factors that Ellis Quilting Company should consider before accepting a special order to sell blankets to Kent Motels.

Solution Preview

1. Ellis Quilting company makes blankets that it markets through a variety of departments stores. Problem: 13-23 Effects of order quality on special order decision
Ellis Quilting Company makes blankets that it markets through a variety of department stores. It makes the blankets in batches of 1,000 units. Ellis made 20,000 blankets during the prior accounting period. The cost of producing the blankets is summarized here.
Material cost ($25 per unit x 20,000) $ 500,000
Labor cost ($22 per unit x 20,000) 440,000
Manufacturing supplies ($2 x 20,000) ...

Solution Summary

Solution helps in deciding about the acceptance of the special order.

$2.19