ACT 5060 � Accounting for Decision Makers
Exploration of accounting principles for effective decision-making.
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ACT 5060 – Accounting for Decision Makers
HW #4
Directions: Answer all five questions. Please submit your work in Word or PDF formats
only. You can submit an Excel file to support calculations, but please “cut and paste” your
solutions into the Word or PDF file. Be sure to show how you did your calculations. Also,
please be sure to include your name at the top of the first page of your file. You can use any
sources you wish, except for other people. Please be sure to document any source you use. The
assignment is due by 9:00 AM on Wednesday, November 19th. Please run spell check and
proofread your answers. If you have any questions,
Question #1
Consider the following information, prepared based on a monthly capacity of 80,000 units:
Category Cost per Unit
Variable manufacturing costs $18
Fixed manufacturing costs $5
Variable selling costs $4
Fixed selling costs $3
Capacity cannot be added in the month and the firm currently sells the product for $33 per unit.
Consider each of these scenarios independent of each other.
a) The company is currently producing 72,000 units per month. A potential customer has
contacted the firm and offered to purchase 8,000 units this month only. The customer is
willing to pay $28 per unit. Since the potential customer approached the firm, there will be no
variable selling costs incurred. Should the company accept the special order? Why or why
not? Be specific.
Current Cont pu = SP pu – VC pu = 33 – (18+4) = $11 pu
So Total COnt for 72,000 units = 72,000*11 = $792,000
Fixed cost is Capacity based. SO Fixed Mfg + Selling cost = 80,000*($5+3) = $640,000
So Net Income = Total Cont – Total FC = 792,000-640,000 = $152,000
Addl Contriobution pu from Spl order = SP pu – VC pu = 28 – 18 = $10 pu.
So Addl contribution will be 8000*$10 = $80,000
So Spl order will give addl Net income of $80,000 without affecting existing operations. So it
should be accepted to fully utilize the capacity.
Fixed costs will not be affected as they are period costs & will be incurred irrespective of Spl
order. Hence FC are not relevant to Spl order decsion making.
b) Assume the same facts as in part a, except that the company is producing 80,000 units per
month. Should the company accept the special order? Why or why not? Be specific.
HW #4
Directions: Answer all five questions. Please submit your work in Word or PDF formats
only. You can submit an Excel file to support calculations, but please “cut and paste” your
solutions into the Word or PDF file. Be sure to show how you did your calculations. Also,
please be sure to include your name at the top of the first page of your file. You can use any
sources you wish, except for other people. Please be sure to document any source you use. The
assignment is due by 9:00 AM on Wednesday, November 19th. Please run spell check and
proofread your answers. If you have any questions,
Question #1
Consider the following information, prepared based on a monthly capacity of 80,000 units:
Category Cost per Unit
Variable manufacturing costs $18
Fixed manufacturing costs $5
Variable selling costs $4
Fixed selling costs $3
Capacity cannot be added in the month and the firm currently sells the product for $33 per unit.
Consider each of these scenarios independent of each other.
a) The company is currently producing 72,000 units per month. A potential customer has
contacted the firm and offered to purchase 8,000 units this month only. The customer is
willing to pay $28 per unit. Since the potential customer approached the firm, there will be no
variable selling costs incurred. Should the company accept the special order? Why or why
not? Be specific.
Current Cont pu = SP pu – VC pu = 33 – (18+4) = $11 pu
So Total COnt for 72,000 units = 72,000*11 = $792,000
Fixed cost is Capacity based. SO Fixed Mfg + Selling cost = 80,000*($5+3) = $640,000
So Net Income = Total Cont – Total FC = 792,000-640,000 = $152,000
Addl Contriobution pu from Spl order = SP pu – VC pu = 28 – 18 = $10 pu.
So Addl contribution will be 8000*$10 = $80,000
So Spl order will give addl Net income of $80,000 without affecting existing operations. So it
should be accepted to fully utilize the capacity.
Fixed costs will not be affected as they are period costs & will be incurred irrespective of Spl
order. Hence FC are not relevant to Spl order decsion making.
b) Assume the same facts as in part a, except that the company is producing 80,000 units per
month. Should the company accept the special order? Why or why not? Be specific.
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Document Details
University
Oxford University
Subject
Accounting