cost Accounting- Eley Corporation produces a single product. The cost of producing

| January 30, 2017

Question
1. Eley Corporation produces a single product. The cost of producing and selling a single unit of this product at the company’s normal activity level of 47,000 units per month is as follows:

Direct materials

$46.10

Direct labor

$8.80

Variable manufacturing overhead

$1.80

Fixed manufacturing overhead

$18.70

Variable selling & administrative expense

$3.20

Fixed selling & administrative expense

$15

The normal selling price of the product is $100.10 per unit.

An order has been received from an overseas customer for 2,700 units to be delivered this month at a special discounted price. This order would have no effect on the company’s normal sales and would not change the total amount of the company’s fixed costs. The variable selling and administrative expense would be $1.90 less per unit on this order than on normal sales.

Direct labor is a variable cost in this company.

Suppose the company is already operating at capacity when the special order is received from the overseas customer. What would be the opportunity cost of each unit delivered to the overseas customer?

$40.20 $15.40 $16.70 $14.20

2. Eley Corporation produces a single product. The cost of producing and selling a single unit of this product at the company’s normal activity level of 45,000 units per month is as follows:

Direct materials

$45.10

Direct labor

$8.60

Variable manufacturing overhead

$1.60

Fixed manufacturing overhead

$18.30

Variable selling & administrative expense

$2.80

Fixed selling & administrative expense

$13

The normal selling price of the product is $96.10 per unit.

An order has been received from an overseas customer for 2,500 units to be delivered this month at a special discounted price. This order would have no effect on the company’s normal sales and would not change the total amount of the company’s fixed costs. The variable selling and administrative expense would be $1.70 less per unit on this order than on normal sales.

Direct labor is a variable cost in this company.

Suppose there is not enough idle capacity to produce all of the units for the overseas customer and accepting the special order would require cutting back on production of 950 units for regular customers. The minimum acceptable price per unit for the special order is closest to:

$96.10 $84.90 $69.10 $70.84

3. The following are the Jensen Corporation’s unit costs of making and selling an item at a volume of 2,100 units per month (which represents the company’s capacity):

Manufacturing:

Direct materials

$2.10

Direct labor

$3.10

Variable overhead

$1.60

Fixed overhead

$0.40

Selling and Administrative:

Variable

$3.10

Fixed

$0.80

Present sales amount to 1,250 units per month. An order has been received from a customer in a foreign market for 210 units. The order would not affect current sales. Fixed costs, both manufacturing and selling and administrative, are constant within the relevant range between 1,250 units and 2,100 units. The variable selling and administrative expenses would have to be incurred on this special order as well as for all other sales. Direct labor is a variable cost.

Assume the company has 55 units left over from last year which have small defects and which will have to be sold at a reduced price for scrap. The sale of these defective units will have no effect on the company’s other sales. Which of the following costs is relevant in this decision?

$6.80 variable manufacturing cost

$7.20 unit product cost

$3.10 variable selling and administrative cost

$11.10 full cost

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