PECIAL ORDERS ach of the following questions are independent of each other. (1) The Lantern Corporation has 1,000 obsolete lanterns that are carried in inventory at a manufacturing cost of $20,000. If the lanternsare te-machined, they could be sold for $9,000. Alternatively, the lanterns could be sold for scrap for $1,000, Quantity of obsolete lanterns 1,000 Manufacturing cost of obsolete lanterns S 20,000 Cost to re-machine the obsolete lanterns S 6,320 Re-machined lanterns could be sold for $ 9,000 Obsolete lantems, if notre machined, could be sold for $ 1,000 Required Which alternative (scrap or re-machine) is more desirable, and what are the total relevant costs for that alternative? More desirable alternative Relevant costs of more desirable alternative (2) Relay Corporation manufactures batons. At full capacity, Relay can manufacture 300,000 batons a year at a variable cost of $750,000 and a food cost of S450,000 Based on Relay's predictions for next year, 240,000 batons will be sold at the regular price listed each, as indicated below. In addition, a special order was placed for 60,000 batons to be sold at a 40% specified discount off the regular price. Total foed costs would be unaffected by this order: Quantity of batons at full capacity Total variable manufacturing cost of batons at full capacity 300,000 750,000 $ (2) Relay Corporation manufactures batons. At full capacity, Relay can manufacture 300,000 batons a year at a variable cost of $750,000 and a fixed cost of $450,000 Based on Relay's predictions for next year, 240,000 batons will be sold at the regular price listed each, as indicated below. In addition, a special order was placed for 60,000 batons to be sold at a 40% specified discount off the regular price. Totalfixed costs would be unattected by this order. S 5 Quantity of batons at full capacity Total variable manufacturing cost of batons at full capacity Total food manufacturing cost of batons at full capacity Quantity of batons to be sold at regular price next year Regular Selling price of batons Quantity of batons to be sold at special order price next year Discount of the regular price for special order 300,000 750,000 450,000 240,000 10.60 60,000 AN $ Meguro By what amount would the company's operating income be increased or (decreased as a result of the special order? (3) The manufacturing capacity of lordan Company's facilities is 30,000 units a year. A summary of operating results for last year follows: Manufacturing capacity in units Sales units Selling price per unit Sales Variable Costs Contribution Margin Foxed Costs Operating Income 30,000 18,000 5 100.00 $ 1,800,000 990,000 810,000 495.000 S 315.000 A foreign distributor has offered to buy the following quantity of units at $90 per unit next year Jordan expects its regular sales next year to be 18,000 units 131 The manufacturing capacity of lordan Company's facilities is 30,000 units a year. A summary of operating results for last years 30,000 18,000 $ 100.00 Manufacturing capacity in Sales nits Selling price per unit Sales Variable Costs Contributin Margin Fixed Costs Operating Income $ 1.800,000 990,000 810,000 495,000 S 315,000 A foreign distributor has offered to buy the following quantity of units at $90 per un next year lordan spects its reputar samt year to be 18.000 units Quantity of units foreign distributor has offered to buy Unitarice forcen distributor has offered to pay 16,300 90.00 Is if dan accepts this offer and rejects some business from regular customers so as not to exceed capacity, what would be the total operating income next year? (41 Wagner Company sells Product A for $41 per unit. Wagner's unit product cost based on the full capacity of 200,000 units is as follows: 5 Selling rice for Product A Full capacity in its 41.00 200.000 . D F G K M N 49 So 51 of lordan accepts this offer and rejects some business from regular customers so as not to exceed capacity, what would the total operating income next year? 53 54 (4) Warner Company sells Product A for 541 per unit. Wagner's unit product cost based on the full capacity of 200,000 units is as follows: 55 Selling price for Product A $ 41.00 37 Full capacity in units 200.000 $ 59 60 1 62 Direct Materials Direct Labour Manufacturing Overhead Unit Product Cost 10.60 5.00 6.00 21.60 $ A special order offering to buy 20,000 units has been received from a foreign distributor. The only selling costs that would be incurred on this order would be 53 per unit for shipping. Waper has sufficient idle capacity to manufacture the additional units. Two thirds of the manufacturing overhead is fixed and would not be affected try this order tis 56 52 68 S Number of units the special order is offering to buy Selling costs per unit for special order Amount of manufacturing overhead that is fixed 20,000 3.00 2/3 10 71 In negotiating a price for the special order, what is the total relevant costs per unit that should be considered? 7