Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Mercury Skateboard Company manufactures skateboards. Several weeks ago, the firm received a special-order inquiry from Venus, Inc. Venus desires to market a skateboard similar to

Mercury Skateboard Company manufactures skateboards. Several weeks ago, the firm received a special-order inquiry from Venus, Inc. Venus desires to market a skateboard similar to one of Mercurys and has offered to purchase 11,000 units if the order can be completed in three months. The cost data for Mercurys Champion model skateboard follow.

Direct material $ 16.40
Direct labor: .25 hours at $18.00 4.50
Total manufacturing overhead: .5 machine hours at $40.00 20.00
Total $ 40.90
The following additional information is available.

The normal selling price of the Champion model is $53.00; however, Venus has offered Mercury only $31.50 because of the large quantity it is willing to purchase.

Venus requires a modification of the design that will allow a $4.20 reduction in direct-material cost.

Mercurys production supervisor notes that the company will incur $7,400 in additional setup costs and will have to purchase a $4,800 special device to manufacture these units. The device will be discarded once the special order is completed.

Total manufacturing overhead costs are applied to production at the rate of $40 per machine hour. This figure is based, in part, on budgeted yearly fixed overhead of $1,500,000 and planned production activity of 60,000 machine hours (5,000 per month).

Mercury will allocate $3,600 of existing fixed administrative costs to the order as . . . part of the cost of doing business.

Required:
1-a.

Calculate the net profit increase or (decrease) from accepting the special order. (Do not round intermediate calculations.)

Increase (decrease) to profit _____________

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

More Books

Students also viewed these Accounting questions

Question

What functions might this behavior be serving?

Answered: 1 week ago