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Accounting: What the Numbers Mean 11th Edition by Wayne McManus,Daniel Viele,David Marshall
Edition 11ISBN: 978-1259535314Accounting: What the Numbers Mean 11th Edition by Wayne McManus,Daniel Viele,David Marshall
Edition 11ISBN: 978-1259535314 Exercise 3
Accept special sales order? Integrated Masters, Inc. (IMI), is presently operating at 50% of capacity and manufacturing 50,000 units of a patented electronic component. The cost structure of the component is as follows:
An Italian firm has offered to purchase 30,000 of the components at a price of $6 per unit, FOB IMI's plant. The normal selling price is $8 per component. This special order will not affect any of IMI's "normal" business. Management calculated that the cost per component is $7, so it is reluctant to accept this special order.
Required:
a. Show how management came up with a cost of $7 per unit for this component.
b. Evaluate this cost calculation. Explain why it is or is not appropriate.
c. Should the offer from the Italian firm be accepted? Why or why not?
An Italian firm has offered to purchase 30,000 of the components at a price of $6 per unit, FOB IMI's plant. The normal selling price is $8 per component. This special order will not affect any of IMI's "normal" business. Management calculated that the cost per component is $7, so it is reluctant to accept this special order.
Required:
a. Show how management came up with a cost of $7 per unit for this component.
b. Evaluate this cost calculation. Explain why it is or is not appropriate.
c. Should the offer from the Italian firm be accepted? Why or why not?
Explanation
Verified
Verified
(a) Determine the total cost per unit:
...
Accounting: What the Numbers Mean 11th Edition by Wayne McManus,Daniel Viele,David Marshall
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