Cornerstone Exercise 17.3 (Algorithmic) Special-Order Decision, Alternatives, Relevant Costs

Sequoia Paper Products, Inc., manufactures boxed stationery for sale to specialty shops. Currently, the company is operating at 90 percent of capacity. A chain of drugstores has offered to buy 32,000 boxes of Sequoias blue-bordered thank-you notes as long as the box can be customized with the drugstore chains logo. While the normal selling price is $5.10 per box, the chain has offered just $3.40 per box. Sequoia can accommodate the special order without affecting current sales. Unit cost information for a box of thank-you notes follows:

Direct materials	$1.55
Direct labor	0.40
Variable overhead	0.07
Fixed overhead	2.10
Total cost per box	$4.12

Fixed overhead is $397,000 per year and will not be affected by the special order. Normally, there is a commission of 9 percent of price; this will not be paid on the special order since the drugstore chain is dealing directly with the company. The special order will require additional fixed costs of $15,300 for the design and setup of the machinery to stamp the drugstore chains logo on each box.

Required:

1. Which alternative is more cost effective and by how much? - Select your answer -Accept the special orderReject the special orderItem 1

The operating income would increase by $ .

2. What if Sequoia Paper Products was operating at capacity and accepting the special order would require rejecting an equivalent number of boxes sold to existing customers? Which alternative would be better? - Select your answer -Regular salesSpecial orderItem 3

Cornerstone Exercise 17.4 (Algorithmic) Sell at Split-Off or Process Further Decision, Alternatives, Relevant Costs

Betram Chemicals Company processes a number of chemical compounds used in producing industrial cleaning products. One compound is decomposed into two chemicals: anderine and dofinol. The cost of processing one batch of compound is $71,500, and the result is 6,200 gallons of anderine and 8,000 gallons of dofinol. Betram Chemicals can sell the anderine at split-off for $10.00 per gallon and the dofinol for $6.60 per gallon. Alternatively, the anderine can be processed further at a cost of $8.00 per gallon (of anderine) into cermine. It takes 4 gallons of anderine for every gallon of cermine. A gallon of cermine sells for $60.

Required:

1. Which alternative is more cost effective and by how much? Do NOT round interim calculations and, if required, round your answer to the nearest cent.

- Select your answer -Sell at split-offProcess it furtherItem 1 by $

2. What if the production of anderine into cermine required additional purchasing and quality inspection activity? Every 580 gallons of anderine that undergo further processing require 23 more purchase orders at $12 each and 18 more quality inspection hours at $28 each. Which alternative would be better and by how much? Do NOT round interim calculations and, if required, round your answer to the nearest cent.

- Select your answer -Sell at split-offProcess it furtherItem 3 by $