Question
Use the following information to answer 69-71 The Melrose Company produces a single product, Product C. Melrose has the capacity to produce 70,000 units of
Use the following information to answer 69-71
The Melrose Company produces a single product, Product C. Melrose has the capacity to produce 70,000 units of Product C each year. If Melrose produces at capacity, the per unit costs to produce and sell one unit of Product C are as follows:
Direct Materials- 20
direct labor- 17
variable MOH- 13
Fixed MOH- 14
Variable selling expense- 12
Fixed Selling expense- 8
The regular selling price of one unit of Product C is $100. A special order has been received by Melrose from Moore Company to purchase 7,000 units of Product C during the upcoming year. If this special order is accepted, the variable selling expense will be reduced by 75%. Total fixed manufacturing overhead and fixed selling expenses would be unaffected except that Melrose will need to purchase a specialized machine to engrave the Moore name on each unit of product C in the special order. The machine will cost $10,500 and will have no use after the special order is filled.
69. Assume that Melrose expects to sell 60,000 units of Product C to regular customers next year. At what selling price for the 7,000 units would Melrose be economically indifferent between accepting and rejecting the special order from Moore?
A) $53.00
B) $54.50
C) $75.00
D) $76.50
Level: Hard LO: 4 Ans: B
70. Assume Melrose expects to sell 60,000 units of Product C to regular customers next year. If Moore company offers to buy the special units at $90 per unit, the effect of accepting the special order on Melroses net operating income for next year will be:
A) $42,000 increase
B) $54,000 decrease
C) $105,000 increase
D) $248,500 increase
Level: Hard LO: 4 Ans: D
71. Suppose Melrose can sell 68,000 units of Product C to regular customers next year. If Moore Company offers to buy the special order units at $95 per unit, the effect of accepting the special order for 7,000 units on Melroses net operating income for next year will be a:
A) $93,500 increase
B) $104,000 increase
C) $114,500 increase
D) $294,000 increase
Level: Hard LO: 4 Ans: A
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