1. The PJ Company manufactures slippers and sells them at $9 a pair. Variable manufacturing cost is $6.50 a pair, and allocated fixed manufacturing cost is $0.75 a pair. It has enough idle capacity available to accept a one-time-only special order of 30,000 pairs of slippers at $7.25 a pair. PJ will not incur any marketing costs as a result of the special order. What would the effect on operating income be if the special order could be accepted without affecting normal sales: (a) $0, (b) $22,500 increase, (c) $195,000 increase, or (d) $217,500 increase? Show your calculations. Begin by selecting the labels to calculate the effect on operating income and then enter in the supporting calculations. * units in special order Effect on operating income What would the effect on operating income be if the special order could be accepted without affecting normal sales? A. $0 B. $22,500 increase C. $195,000 increase O D. $217,500 increase Data table $ 3 35 Direct materials Variable direct manufacturing labor Variable manufacturing overhead Fixed manufacturing overhead allocated 11 22 $ 71 Total manufacturing cost per unit The Cushion Company has offered to sell 15,000 units of Part No. 498 to Chicago for $67 per unit. Chicago will make the decision to buy the part from Cushion if there is an overall savings of at least $20,000 for Chicago. If Chicago accepts Cushion's offer, $8 per unit of the fixed overhead allocated would be eliminated. Furthermore, Chicago has determined that the released facilities could be used to save relevant costs in the manufacture of Part No. 575. 2. The Chicago Company manufactures Part No. 498 for use in its production line. The manufacturing cost per unit for 15,000 units of Part No. 498 is as follows: (Click to see the manufacturing cost per unit.) For Chicago to achieve an overall savings of $20,000, the amount of relevant costs that would have to be saved by using the released facilities in the manufacture of Part No. 575 would be which of the following: (a) $60,000, (b) $170,000, (c) $80,000 or (d) $210,000? Show your calculations. What other factors might Chicago consider before outsourcing to Cushion? Begin by selecting the labels to calculate the relevant costs that would have to be saved and then enter in the supporting calculations. Cost to purchase Total relevant costs of making: (per unit) Costs saved by not making x units in the offer Total costs saved Extra costs of purchasing outside I Minimum savings required Necessary relevant costs to be saved For Chicago to achieve an overall savings of $20,000, the amount of relevant costs that would have to be saved by using the released facilities in the manufacture of Part No. 575 would be: A. $60,000 B. $210,000 C. $80,000 D. $170,000 What other factors might Chicago consider before outsourcing to Cushion? Before outsourcing to Cushion, Chicago might consider Chicago would want to be sure about Chicago would also want Cushion to To achieve all these goals, Chicago may want to
