Question
3 Special Order [5pt each, Total 15 pts] Choi company produces a variety of bicycles. Assume that Choi has just received an order from a
3 Special Order [5pt each, Total 15 pts] Choi company produces a variety of bicycles. Assume that Choi has just received an order from a customer (CycleMania) for 500 stationary indoor cycles. The following price, based on cost plus a markup, has been developed for the order: Manufacturing costs Direct materials $ 11,850 Direct labor Factory overhead $ 8,500 $ 12,800 Total $ 33,150 Markup $ 9,945 $ 43.095 Selling price CycleMania rejected this price and offered to purchase the 500 stationary indoor cycles at a price of $40,000. The following additional information is available: -Choi has sufficient excess capacity to produce the stationary indoor cycles. -Factory overhead is applied on the basis of direct labor dollars. -Budgeted factory overhead is $8,000,000 for the current year. Of this amount, $6,000,000 is fixed. Of the $12,800 of factory overhead assigned to CycleMania's order, only $3,200 is driven by the special order; $9,600 is a fixed cost. - Selling and administrative expenses are budgeted as follows: Fixed: $###### per year Variable: $ 10 per unit manufactuerd and sold (a) The sales manager of Choi company wants to know if he should allow CycleMania to have the indoor cycles for $40,000 Determine the effect on profit of accepting the counteroffer from CycleMania. Profit will by $ if this offer is accepted. (b) Briefly explain why certain costs should be omitted from your analysis in (a) (c) Assume Choi is operating at capacity and could sell 500 indoor cycles at its regular markup, if not sold to CycleMania. Determine the opportunity cost of accepting CycleMania's offer
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