Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Resource Usage Model, Special Order Ehrling, Inc., manufactures metal racks for hanging clothing in retail stores. Ehrling wasapproached by the CEO of Carlys Corner, a

Resource Usage Model, Special Order

Ehrling, Inc., manufactures metal racks for hanging clothing in retail stores. Ehrling wasapproached by the CEO of Carlys Corner, a regional nonprofit food bank, with an offer to buy350 heavy-duty metal racks for storing canned goods and dry food products. While racks normallysell for $245 each, Carlys Corner offered $75 per rack. The CEO explained that the numberof families they served had grown significantly over the past two years, and that the charityneeded additional storage for the donated food items. Since Ehrling is operating at 80 percent ofcapacity, and Ehrling employees have adopted Carlys Corner as their annual charity, the company wants to make the special order work. Ehrlings controller looked into the cost of the storage racks using the following information from the activity-based accounting system:

Expansion of activity capacity for setups, inspection, and machining must be done in steps. Forsetups, each step provides an additional 20 hours of setup activity and costs $3,000. For inspection,activity capacity is expanded by 2,000 hours per year, and the cost is $20,000 per year (thesalary for an additional inspector). Machine capacity can be leased for a year at a rate of $40per machine hour. Machine capacity must be acquired, however, in steps of 1,500 machinehours.

Required:

1.Compute the change in income for Ehrling, Inc., if the order is accepted. $

2.Does the order require any change in capacity for setups, packing, or machining? - Select your answer -YesNoItem 2

3.Suppose that the packing activity can be eliminated for this order since the customer is in town and does not need to have the racks boxed and shipped. Because of this, direct materials can be reduced by $13 per unit, and direct labor can be reduced by 0.5 hour per unit. How is the analysis affected?

It is now a $- Select your answer -lossgainif the special order is accepted.

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_2

Step: 3

blur-text-image_3

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

Cost Accounting Principles And Applications

Authors: Horace Brock, Linda Herrington, La Vonda Ramey

7th Edition

0071115609, 978-0071115605

More Books

Students also viewed these Accounting questions

Question

What is the Black Scholes Model

Answered: 1 week ago