SPECIAL ORDERS Each of the following 4 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 lanterns are re-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 $ 20,000 Cost to re-machine the obsolete lanterns $ 5,340 Re-machined lanterns could be sold for $ 9,000 Obsolete lanterns, if not re-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 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. Total fixed costs would be unaffected by this order. $ $ Quantity of batons at full capacity Total variable manufacturing cost of batons at full capacity Total fixed 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 off the regular price for special order 300,000 750,000 450,000 240,000 5.70 60,000 40% $ Required: 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 Jordan Company's facilities is 30,000 units a year. A summary of operating results for last year follows: 30,000 18,000 $ 100.00 $ Manufacturing capacity in units Sales units Selling price per unit Sales Variable Costs Contribution Margin Fixed Costs Operating Income 1,800,000 990,000 810,000 495,000 315,000 $ 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 Quantity of units foreign distributor has offered to buy Unit price foreign distributor has offered to pay 13,850 90.00 $ Required: If Jordan 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? (4) 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: $ Selling price for Product A Full capacity in units 41.00 200,000 $ Direct Materials Direct Labour Manufacturing Overhead 5.70 5.00 6.00 Unit Product Cost $ 16.70 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 $3 per unit for shipping. Wagner has sufficient idle capacity to manufacture the additional units. Two-thirds of the manufacturing overhead is fixed and would not be affected by this order. 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 Required: In negotiating a price for the special order, what is the total relevant costs per unit that should be considered
