Problem
Special Order; Ethics (LO 14-3, 14-5)
[The following information applies to the questions displayed below.]
Treasure Island Beach Equipment, Inc., manufactures deluxe beach cabanas in Tampa, Florida. Its manufacturing plant has the capacity to produce 3,300 cabanas each month. Current monthly production is 2,475 cabanas. The company normally charges $500 per cabana. Variable costs and fixed costs for the current activity level of 75 percent of capacity are shown in the table below.
Management has just received a special one-time order for 825 cabanas at $335 per cabana. For this particular order, no variable marketing costs will be incurred.
Samantha Peters, the assistant controller, has been assigned the task of analyzing this order and recommending whether the company should accept or reject it. After examining the costs, Peters suggested to her supervisor, Katie Maas, who is the controller, that they request competitive bids from vendors for the raw material as the current quote seems high.
Maas insisted that the prices are in line with other vendors and told her that she was not to discuss her observations with anyone else. Peters later discovered that Maas is a sister-in-law of the owner of the current raw-material supply vendor.
|
Current Product Costs
(at 75% of Capacity)
|
| Variable costs: |
|
|
|
| Manufacturing: |
|
|
|
| Direct labor |
$ |
544,500 |
|
| Direct material |
|
136,125 |
|
| Marketing |
|
185,625 |
|
| |
|
|
|
| Total variable costs |
$ |
866,250 |
|
| |
|
|
|
| Fixed costs: |
|
|
|
| Manufacturing |
$ |
208,950 |
|
| Marketing |
|
112,800 |
|
| |
|
|
|
| Total fixed costs |
$ |
321,750 |
|
| |
|
|
|
| Total costs |
$ |
1,188,000 |
|
| |
|
|
|
| Variable cost per unit |
$ |
350 |
|
| Fixed cost per unit |
|
130 |
|
| |
|
|
|
| Average unit cost |
$ |
480 |
References
Section BreakProblem 14-52 Special Order; Ethics (LO 14-3, 14-5)
Required information
Problem 14-52 Part 1
Required:
1. Which of the following costs will be relevant to Peters' analysis of the special order being considered by Treasure Island Beach Equipment, Inc.? (Select all that apply.)
References
eBook & Resources
ProblemDifficulty: HardLearning Objective: 14-05 Prepare analyses of various special decisions, properly identifying the relevant costs and benefits.
Problem 14-52 Part 1Learning Objective: 14-03 List and explain two criteria that must be satisfied by relevant information.
Check my work
Part 2
2-a. Should management accept the special order?
Yes
No
2-b. Compute the new average unit cost for (a) current monthly production alone; (b) the special order alone; and (c) total combined production. (Do not round intermediate calculations.)