I recently had this question answered by a tutor who copied an original post, I am hoping someone can double check these answers because Chegg shows different results for these excel graphs This is very frustrating in understanding how they got the answers Also can anyone think of other reasons than the ones I posted in reference to Part 1 D and Part 2 F No rush to an answer but I would truly appreciate your effort Thank you kindly Part 1 Arequipa Enterprises (AE) began as a maker of industrial drafting equipment After several successful years, the company has graduated into making two popular products a plotter and a 3D printer Both products have the same variable costs as shown below Variable costs per unit Direct materials $ 70 Direct labour $130 Variable manufacturing overhead $ 30 Sales Commission $20 Total $250 In order to maintain good customer service, AE keeps about 500 units of each product on hand as warehouse inventory The company has a long term contract to rent manufacturing equipment and necessary space for $9,000,000 per year General administrative costs amount to $2,100,000 per year Costs and unit sales are expected to be consistent from last year to the current year Based on last years' results, AE expects to sell 10,000 units of each product this year The plotters are priced at $800 and the 3D printers at $1,000 Rachel Merrett, president of the company, is considering how best to motivate her managers She feels it is fair to provide bonuses once the company's operating income is 5 above the expected operating income Required Prepare a contribution format income statement for AE using variable costing Prepare an income statement for AE using absorption costing Based on Rachel's approach, what is the operating income level that AE must generate before managers are eligible for bonuses Rachel can specify the use of either the contribution format income statement or the absorption costing income statement in defining the bonus threshold Which would you recommend she use Explain why Part II A few weeks later, Rachel is pondering how she should respond to a request for a bid that has just been brought in by her sales manager The request comes from an overseas company operating outside of AE's usual market area and is for a one time shipment of 5,000 customized 3D printers The overseas company has offered to pay all shipping costs FOB plant The customized printers would carry the same variable cost as AE's standard product but would require an estimated $100,000 in retooling costs to fulfill the custom specifications Rachel believes that currently the company has sufficient capacity to handle the additional 5,000 units of output without needing additional equipment or space The production manager feels it would be possible to build the units, but the plant will be nearing or just over their capacity In considering what price to bid, Rachel wants to first determine the minimum price that she can accept on the order without lowering the company's operating income The sales manager has suggested a figure of $720 unit) based on the following calculations Variable costs per unit $250 Fixed manufacturing cost per unit $450 Retooling costs per unit ($100,000 5,000 units) $20 Full manufacturing cost per unit $720 The production manager felt they could go as low as $630 unit, based on spreading the fixed manufacturing costs over 25,000 units rather than 20,000 units without the special order Required Based on the information provided, what is your advice to Rachel regarding the minimum price she can accept without reducing operating income Explain your answer thoroughly Hint Provide a revised income statement including the special order showing that operating income is unchanged Assume the overseas customer is willing to buy at a price slightly above the minimum you recommended in part (e) Separate from the pricing decision, are there any other risks or concerns Rachel should consider before agreeing to accept the special order List two risks concerns and explain why each is a concern PART 1 a VARIABLE COSTING PART 1 B ABSORPTION COSTING Total Sales 18,000,000 00 Sales 18,000,000 00 Less Cost of Sales 13,600,000 0 Less Variable costs 5,000,000 00 Gross Profit 4,400,000 0 Contribution Margin 13,000,000 00 Less Operating Expenses 2,500,000 00 Less Fixed costs 11,100,000 00 Operating Income 1,900,000 00 Operating Income 1,900,000 00 COST OF SALES Plotters 3D Direct materials 70 00 Sales 3,000,000 00 10,000,000 00 Direct labor 130 00 Less Variable costs 2,500,000 00 2,500,000 00 Variable manufacturing overhead 30 00 Contribution Margin 5,500,000 00 7,500,000 00 Rent (9,000,000 20,000) 450 00 Cost per unit 580 0 VARIABLE COSTS Plotters 30 Total Multiply by units sold 20,000 00 Direct materials 700,000 00 700,000 00 1,400,000 00 Cost of Sales 13,600,000 00 Direct labor 1,300,000 00 1,300,000 00 2,600,000 00 Variable manufacturing overhead 300,000 00 300,000 00 600,000 00 Operating Expenses Sales commissions 200,000 00 200,000 00 400,000 00 Sales commissions 400,000 00 Total Variable costs 2,500,000 00 2,500,000 00 5,000,000 00 General and Administrative 2,100,000 00 Total Operating Expenses 2,500,000 00 FIXED COSTS Total Rent 9,000,000 00 General and Administrative 2,100,000 00 Total Fixed Costs 11,100,000 00 PART 1 c TARGET OPERATING INCOME PART 1d RECOMMENDATION Expected operating income 1,900,000 00 would recommend to use the variable costing format because it shows the Multiply by 105 the behavior of costs It would be easier for the company to control costs if Operating Income to give bonuses 1,995,000 00 it can distiguish variable cost from fixed costs PART 2 e MINIMUM PRICE OF SPECIAL ORDER The minimum acceptable price is 250, which is the variable cost per unit Total Sales 19,350,000 00 Less Variable costs 6,350,000 00 Contribution Margin 13,000,000 00 Less Fixed costs 11, 100,000 00 Operating Income 1,900,000 00 unchanged Plotters 3D Special Order Total Sales Price 800 00 1,000 00 270 00 Multiply by units 10,000 00 10,000 00 5,000 00 25,000 00 Sales 8,000,000 00 10,000,000 00 1,350,000 00 19,350,000 00 VARIABLE COSTS Plotters 3D Special Order Total Direct materials 700,000 00 700,000 00 350,000 00 1,750,000 00 Direct labor ,300,000 00 1,300,000 00 650,000 00 3,250,000 00 Variable manufacturing overhead 300,000 00 300,000 00 150,000 00 750,000 0 Sales commissions 200,000 00 200,000 00 100,000 00 500,000 00 Retooling costs 100,000 00 100,000 00 Total Variable costs 2,500,000 00 2,500,000 00 1,350,000 00 6,350,000 00 FIXED COSTS Tota 9,000,000 00 General and Administrative 2,100,000 00 Total Fixed Costs 11,100,000 00 PART 2 F RISKS 1 One important consideration for the special order is, the capacity The company must ensure that the capacity for normal orders will not be affected by a special order because it is only a one time deal To decrease the normal volumes for current customer may have a negative effect to an stable source of revenue 2 Another risk is the custom specifications of the order Since it is only a one time order, the company may be unnecessarily changing equipment set ups and may cause a decrease in efficiency in production

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I recently had this question answered by a tutor who copied an original post, I am hoping someone can double check these answers because Chegg

I recently had this question answered by a tutor who copied an original post, I am hoping someone can double check these answers because Chegg shows different results for these excel graphs. This is very frustrating in understanding how they got the answers. Also can anyone think of other reasons than the ones I posted in reference to Part 1: D and Part 2: F. No rush to an answer but I would truly appreciate your effort. Thank you kindly.

Part 1:

Arequipa Enterprises (AE) began as a maker of industrial drafting equipment. After several successful years, the company has graduated into making two popular products: a plotter and a 3D printer. Both products have the same variable costs as shown below.

Variable costs per unit:

Direct materials

$ 70

Direct labour

$130

Variable manufacturing overhead

$ 30

Sales Commission

$20

Total

$250

In order to maintain good customer service, AE keeps about 500 units of each product on hand as warehouse inventory.

The company has a long-term contract to rent manufacturing equipment and necessary space for $9,000,000 per year.General & administrative costs amount to $2,100,000 per year.

Costs and unit sales are expected to be consistent from last year to the current year.Based on last years' results, AE expects to sell 10,000 units of each product this year.The plotters are priced at $800 and the 3D printers at $1,000.

Rachel Merrett, president of the company, is considering how best to motivate her managers.She feels it is fair to provide bonuses once the company's operating income is 5% above the expected operating income.

Required:

Prepare a contribution format income statement for AE using variable costing.
Prepare an income statement for AE using absorption costing.
Based on Rachel's approach, what is the operating income level that AE must generate before managers are eligible for bonuses?
Rachel can specify the use of either the contribution format income statement or the absorption costing income statement in defining the bonus threshold.Which would you recommend she use?Explain why.

Part II

A few weeks later, Rachel is pondering how she should respond to a request for a bid that has just been brought in by her sales manager. The request comes from an overseas company operating outside of AE's usual market area and is for a one-time shipment of 5,000 customized 3D printers. The overseas company has offered to pay all shipping costs FOB plant.The customized printers would carry the same variable cost as AE's standard product but would require an estimated $100,000 in retooling costs to fulfill the custom specifications.

Rachel believes that currently the company has sufficient capacity to handle the additional 5,000 units of output without needing additional equipment or space. The production manager feels it would be possible to build the units, but the plant will be nearing or just over their capacity.

In considering what price to bid, Rachel wants to first determine the minimum price that she can accept on the order without lowering the company's operating income. The sales manager has suggested a figure of $720/unit) based on the following calculations:

Variable costs per unit

$250

Fixed manufacturing cost per unit

$450

Retooling costs per unit ($100,000/5,000 units)

$20

Full manufacturing cost per unit

$720

The production manager felt they could go as low as $630/unit, based on spreading the fixed manufacturing costs over 25,000 units rather than 20,000 units without the special order.

Required:

Based on the information provided, what is your advice to Rachel regarding the minimum price she can accept without reducing operating income?Explain your answer thoroughly.[Hint: Provide a revised income statement including the special order showing that operating income is unchanged.]
Assume the overseas customer is willing to buy at a price slightly above the minimum you recommended in part (e).Separate from the pricing decision, are there any other risks or concerns Rachel should consider before agreeing to accept the special order?List two risks/concerns and explain why each is a concern.

PART 1 a. VARIABLE COSTING PART 1 B. ABSORPTION COSTING Total Sales 18,000,000.00 Sales 18,000,000.00 Less: Cost of Sales* 13,600,000.0 Less: Variable costs* 5,000,000.00 Gross Profit 4,400,000.0 Contribution Margin 13,000,000.00 Less: Operating Expenses** 2,500,000.00 Less: Fixed costs* * 11,100,000.00 Operating Income 1,900,000.00 Operating Income 1,900,000.00 #COST OF SALES Plotters 3D Direct materials 70.00 Sales 3,000,000.00 10,000,000.00 Direct labor 130.00 Less: Variable costs* 2,500,000.00 2,500,000.00 Variable manufacturing overhead 30.00 Contribution Margin 5,500,000.00 7,500,000.00 Rent (9,000,000/20,000) 450.00 Cost per unit 580.0 * VARIABLE COSTS Plotters 30 Total Multiply by: units sold 20,000.00 Direct materials 700,000.00 700,000.00 1,400,000.00 Cost of Sales 13,600,000.00 Direct labor 1,300,000.00 1,300,000.00 2,600,000.00 Variable manufacturing overhead 300,000.00 300,000.00 600,000.00 *Operating Expenses Sales commissions 200,000.00 200,000.00 400,000.00 Sales commissions 400,000.00 Total Variable costs 2,500,000.00 2,500,000.00 5,000,000.00 General and Administrative 2,100,000.00 Total Operating Expenses 2,500,000.00 **FIXED COSTS Total Rent 9,000,000.00 General and Administrative 2,100,000.00 Total Fixed Costs 11,100,000.00 PART 1 c. TARGET OPERATING INCOME PART 1d. RECOMMENDATION Expected operating income 1,900,000.00 would recommend to use the variable costing format because it shows the Multiply by: % 105% the behavior of costs. It would be easier for the company to control costs if Operating Income to give bonuses 1,995,000.00 it can distiguish variable cost from fixed costs. PART 2 e. MINIMUM PRICE OF SPECIAL ORDER The minimum acceptable price is 250, which is the variable cost per unit. Total Sales 19,350,000.00 Less: Variable costs* 6,350,000.00 Contribution Margin 13,000,000.00 Less: Fixed costs** 11, 100,000.00 Operating Income 1,900,000.00 unchanged Plotters 3D Special Order Total Sales Price 800.00 1,000.00 270.00 Multiply by: units 10,000.00 10,000.00 5,000.00 25,000.00 Sales 8,000,000.00 10,000,000.00 1,350,000.00 19,350,000.00 * VARIABLE COSTS Plotters 3D Special Order Total Direct materials 700,000.00 700,000.00 350,000.00 1,750,000.00 Direct labor ,300,000.00 1,300,000.00 650,000.00 3,250,000.00 Variable manufacturing overhead 300,000.00 300,000.00 150,000.00 750,000.0 Sales commissions 200,000.00 200,000.00 100,000.00 500,000.00 Retooling costs 100,000.00 100,000.00 Total Variable costs 2,500,000.00 2,500,000.00 1,350,000.00 6,350,000.00 * *FIXED COSTS Tota 9,000,000.00 General and Administrative 2,100,000.00 Total Fixed Costs 11,100,000.00 PART 2 F. RISKS 1. One important consideration for the special order is, the capacity. The company must ensure that the capacity for "normal" orders will not be affected by a special order because it is only a one time deal. To decrease the normal volumes for current customer may have a negative effect to an stable source of revenue. 2. Another risk is the custom specifications of the order. Since it is only a one time order, the company may be unnecessarily changing equipment set ups and may cause a decrease in efficiency in production