(Special order) Classic Wood Products produces solid-oak umbrella stands. Each stand is handmade and hand finished using...
Question:
(Special order) Classic Wood Products produces solid-oak umbrella stands. Each stand is handmade and hand finished using the finest materials avail¬ able. The firm has been operating at capacity for the past three years (2,000 stands per year). Based on the capacity level operations, the firm’s costs per stand are as follows:
All selling and administrative expenses incurred by the firm are fixed. The average selling price of stands is $275.
Recently, a large retailer approached Sam Tirade, the president of Classic Wood Products, about supplying three special stands to give as gifts to CEOs of key suppliers. These stands would require approximately twice as much material as the typical one now made. Mr. Tirade estimates that the following per-unit costs would be incurred to make the three stands:
To accept the special order, the firm would have to sacrifice production of 20 regular units.
a. Identify all relevant costs that Tirade should consider in deciding whether to accept the special order.
b. Assume the large retailer offers a total of $3,600 for the three stands. How would accepting this offer affect Classic Wood Products’ pre-tax in¬ come?
Step by Step Answer:
Cost Accounting Foundations And Evolutions
ISBN: 9780324235012
6th Edition
Authors: Michael R. Kinney, Jenice Prather-Kinsey, Cecily A. Raiborn