In March the Klassic Clothing Company started working on a special order of fall suits ordered by Winston?s, a regional chain of specialty stores in the southeast United States. Winston?s agreed to pay $800,000 for the suits. When the order was nearly finished, there was a complete management change in Winston?s, and the buyer who had ordered from Klassic was replaced. The new buyer wanted the fall clothes to reflect only her own taste, and she canceled the order from Kalssic. The president of Klassic called other firms in an effort to sell the suits and got an offer of $536,000. The sales manager frantically called other companies to try to get a better offer. Redburns, a group of stores in the Northeast, offered $600,000 for the suits if some distinctive buttons and more expensive trim could be added.

In order to decide what to do, the sales manager got the following information about the order from the production manager:

Costs to Date

Materials???????????????.$119,850

Direct labor (24,500 hours @ $5.50)????...134,750

Factory overhead @ $11 per hour??????265,400

Total?????????????????$520,000

The factory overhead rate includes $4.40 variable overhead and $6.60 fixed overhead. The production manager made the following estimates of the costs necessary to finish the order:

Required

a. What is the full cost of the job if:

1) The order is completed according to the original specifications?

2) the order is completed according to Redburns? specifications?

b. Which offer should the president accept? In your own words defend your answer.

Materials Direct labor hours Original Order Red burns' Offer $15,500 2,600 $34,600 6,300