Question
Ironwood Company manufactures a variety of sunglasses. Production information for its most popular line, the Clear Vista (CV), follows: Per Unit Sales price $ 57.50
Ironwood Company manufactures a variety of sunglasses. Production information for its most popular line, the Clear Vista (CV), follows:
Per Unit | |||||
Sales price | $ | 57.50 | |||
Direct materials | 26.00 | ||||
Direct labor | 10.00 | ||||
Variable manufacturing overhead | 2.00 | ||||
Fixed manufacturing overhead | 5.00 | ||||
Total manufacturing cost | $ | 43.00 | |||
Suppose that Ironwood has been approached about producing a special order for 3,400 units of custom CV sunglasses for a new semiprofessional volleyball league. All units in the special order would be produced in the leagues signature colors with a specially designed logo emblem attached to the side of the glasses. The league has offered to pay $55.00 per unit in the special order. Additional costs for the special order total $6.00 per unit for mixing the special frame color and purchasing the emblem with the leagues logo that will be attached to the glasses. Required: 1. Assume Ironwood has the idle capacity necessary to accommodate the special order. Calculate the additional contribution margin Ironwood would make by accepting the special order.
2-a. Calculate the current contribution margin per unit. (Round your answer to 2 decimal places.)
2-b. Suppose Ironwood is currently operating its production facility at full capacity and accepting the special order would mean reducing production of its regular CV model. Should Ironwood accept the special order in this case?
3. Calculate the special order price per unit at which Ironwood is indifferent between accepting or rejecting the special order. (Round your answer to 2 decimal places.)
------------------------
Anne Sugar makes large ceramic pots for use in outdoor landscaping. She currently has two models, one square and the other round. Because of the size of Annes creations, only one pot can be fired in the kiln at a time. Information about each model follows:
Square | Round | ||||
Sales price | $110 | $140 | |||
Variable cost | $25 | $28 | |||
Firing time | 2.5 | hours | 3.5 | hours | |
Assume that Anne can sell as many pots as she can create but that she is limited as to the number of hours that the kiln can be run. Compute the contribution margin per unit and contribution margin per hour of firing time.
Which type of pot should Anne produce to maximize her short-term profit?
square Ceramic Pot | ||||||||||||||||||||||||||||||||||||||||||
round Ceramic Pot | ||||||||||||||||||||||||||||||||||||||||||
Both ----------------- Blowing Sand Company produces the Drafty model fan, which currently has a net loss of $47,000 as follows:
Eliminating the Drafty product line would eliminate $57,000 of direct fixed costs. The $56,000 of common fixed costs would be redistributed to Blowing Sands remaining product lines. Will Blowing Sands net operating income increase or decrease if the Drafty model is eliminated? By how much? ------------ Blowing Sand Company has just received a one-time offer to purchase 11,600 units of its Gusty model for a price of $41 each. The Gusty model costs $47 to produce ($36 in variable costs and $11 of fixed overhead). Because the offer came during a slow production month, Blowing Sand has enough excess capacity to accept the order. 1. Should Blowing Sand accept the special order?
2. Calculate the increase or decrease in short-term profit from accepting the special order.
|
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started