Question
Treasure Island Beach Equipment, Inc., manufactures deluxe beach cabanas in Tampa, Florida. Its manufacturing plant has the capacity to produce 2,500 cabanas each month. Current
Treasure Island Beach Equipment, Inc., manufactures deluxe beach cabanas in Tampa, Florida. Its manufacturing plant has the capacity to produce 2,500 cabanas each month. Current monthly production is 1,875 cabanas. The company normally charges $525 per cabana. Variable costs and fixed costs for the current activity level of 75 percent of capacity are shown in the table below. |
Management has just received a special one-time order for 625 cabanas at $300 per cabana. For this particular order, no variable marketing costs will be incurred. Samantha Peters, the assistant controller, has been assigned the task of analyzing this order and recommending whether the company should accept or reject it. After examining the costs, Peters suggested to her supervisor, Katie Maas, who is the controller, that they request competitive bids from vendors for the raw material as the current quote seems high. Maas insisted that the prices are in line with other vendors and told her that she was not to discuss her observations with anyone else. Peters later discovered that Maas is a sister-in-law of the owner of the current raw-material supply vendor. |
Current Product Costs (at 75% of Capacity) | |||
Variable costs: | |||
Manufacturing: | |||
Direct labor | $ | 281,250 | |
Direct material | 196,875 | ||
Marketing | 140,625 | ||
Total variable costs | $ | 618,750 | |
Fixed costs: | |||
Manufacturing | $ | 206,250 | |
Marketing | 131,250 | ||
Total fixed costs | $ | 337,500 | |
Total costs | $ | 956,250 | |
Variable cost per unit | $ | 330 | |
Fixed cost per unit | 180 | ||
Average unit cost | $ | 510 | |
1. Compute the new average unit cost for (a) current monthly production alone; (b) the special order alone; and (c) total combined production. (Do not round intermediate calculations.) |
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