The assignment is about a special order for 20,000 pairs. The solution involves calculating the contribution per pair and total contribution from the special order. It also compares the cost of manufacturing part no.498 with the cost of buying it. The overall saving required to release facilities is calculated.
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Chapter 11 problem 18: Solution 1: B Sale price of special order per pair= $6 Variable manufacturing cost per pair= $4.5 Contribution per pair= sale price – variable manufacturing cost = $6 - $4.5 = $1.5 Total contribution from 20000 pairs= $1.5 x 20000 =$30000 If special order will be accepted: Operating income will increase by $30000 Solution 2: B Relevant cost for manufacturing part no.498 for 20000 units: Direct material= $6 x 20000 = $120000 Direct manufacturing labour= $30 x 20000 = $600000 Variable manufacturing overhead= $12 x 20000 = $240000 Avoidable fixed overhead= $9 x 20000 = $180000 Total relevant manufacturing cost= $120000+$600000+$240000+$180000 = $1140000 Overall saving required= $25000 Total cost of buying part no.498= $60 x 20000 = $1200000 Amount of relevant cost that would have to be saved by released facilities: = total buying cost – (total relevant manufacturing cost - saving required) = $1200000 – ($1140000 - $25000) = $1200000 - $1115000 =$85000