Cost of Special order & decision making - Lansing Camera Company
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Lansing Camera Company has received a special order for Photographic equipment that it does not normally produce. The company has spare capacity, and the order could be manufactured without reducing the production of the firm's regular products.
As the company's Operating Manager prepare a report for discussion at the management discussing calculating the cost of the special order and if the considering the following items;
1. Equipment used in producing the order has a book value of $2000. Lansing Camera has no other use for this equipment. If the order is not accepted, the equipment will be sold for $1500. If the equipment is used in producing the order, it can be in three months for $800
2. If the special order is accepted, the operation will require some of the storage space in the company's plant. If the space is used for this purpose, the company will rent storage space temporarily in the nearby warehouse at a cost of $18000. The building depreciation allocated to the storage space in producing the special order is $12000.
3. If the special order is accepted, it will require a sub assembly. Lansing can purchase the sub assembly for $24 per unit from an outside supplier, or the company can make it for $30 per unit. The $30 cost per unit was determined as follows:
Direct materials $10.00
Direct Labour $6.00
Variable costs $6.00
Allocated fixed overhead $8.00
Total unit cost for sub assembly $30.00
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Solution Summary
The solution file contains detailed analysis of various relevant costs in special order decision making and discussion about the existence of spare capacity.
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Lansing Camera Company has received a special order for Photographic equipment that it does not normally produce. The company has spare capacity, and the order could be manufactured without reducing the production of the firm's regular products.
As the company's Operating Manager prepare a report for discussion at the management discussing calculating the cost of the special order and if the considering the following items;
1. Equipment used in producing the order has a book value of $2000. Lansing Camera has no other use for this equipment. If the order is not accepted, the equipment will be sold for $1500. If the equipment is used in producing the order, it can be in three months for $800
2. If the special order is accepted, the operation will require some of the storage space in the company's plant. If the space is used for this purpose, the company will rent storage space temporarily in the nearby warehouse at a cost of $18000. The building depreciation allocated to the storage space in producing the special order is $12000.
3. If the special order is accepted, it will require a sub assembly. Lansing can purchase the sub assembly for $24 per ...
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