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IUMC - Management Accounting - Fall 2019 - Quiz

The company should accept the special one-time order for 400 medals at $63 each. While the price per medal is lower than normal, the variable costs per medal would be lower since no variable selling and administrative costs apply. Additionally, the order would utilize otherwise unused production capacity and require only a one-time rental of a machine, so it would contribute to covering fixed costs without increasing them. The order is therefore likely to be profitable.

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M Usama Ahmed Khan
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280 views

IUMC - Management Accounting - Fall 2019 - Quiz

The company should accept the special one-time order for 400 medals at $63 each. While the price per medal is lower than normal, the variable costs per medal would be lower since no variable selling and administrative costs apply. Additionally, the order would utilize otherwise unused production capacity and require only a one-time rental of a machine, so it would contribute to covering fixed costs without increasing them. The order is therefore likely to be profitable.

Uploaded by

M Usama Ahmed Khan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Managerial

IQRA University, Main Campus, Karachi Accounting

Quiz 3A
Name of Student: ___________________________________; Reg. ID : _______________________________
Question: Special Order Decision
Kneller Co. manufactures and sells medals for winners of athletic and other events. Its manufacturing plant has the
capacity to produce 23,000 medals each month; current monthly production is 10,000 medals. The company
normally charges $82 per medal. Cost data for the current level of production are shown below:
Variable costs: $
Direct materials 397,500
Direct labor 127,200
Selling and administrative 20,600
Fixed costs:
Manufacturing 118,800
Selling and administrative 65,000
The company has just received a special one-time order for 400 medals at $63 each. For this particular order, no
variable selling and administrative costs would be incurred. This order would also have no effect on fixed costs.
However, for this special one-time order a specific cutter machine to emboss logo will be required which may be
rented for $ 1500 for required period. Assume that direct labor is a variable cost.

Required: Should the company accept this special order?


Managerial
IQRA University, Main Campus, Karachi Accounting

Quiz 3B
Name of Student: ___________________________________; Reg. ID : _______________________________
Question: Production under Constrained Resources
Glover Company makes three products in a single facility. These products have the following unit product costs:
Product
A B C
Direct materials $ 35.10 $ 51.60 $ 58.00
Direct labor 22.50 25.10 15.90
Variable manufacturing overhead 2.30 1.70 1.60
Fixed manufacturing overhead 12.20 7.80 8.40
Unit product cost $ 72.10 $ 86.20 $ 83.90
Additional data concerning these products are listed below.
Product
A B C
Mixing minutes per unit 1.30 0.80 0.20
Selling price per unit $ 81.00 $ 103.40 $ 96.90
Variable selling cost per unit $ 2.90 $ 3.40 $ 3.20
Monthly demand in units 3100 4400 2400
The mixing machines are potentially the constraint in the production facility. A total of 7930 minutes are available
per month on these machines. Direct labor is a variable cost in this company.
Required:
a. How many minutes of mixing machine time be required to satisfy demand for all three products?
b. How much of each product should be produced to maximize net operating income?
A B C
Optimal production
c. Up to how much should the company be willing to pay for one additional hour of mixing machine time if the company
has made the best use of the existing mixing machine capacity?

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