Compute the incremental profit from accepting special order

Reference no: EM131914859

Problem

Mohave Corp. makes several varieties of beach umbrellas and accessories. It has been approached by a company called Lost Mine Industries about producing a special order for a custom umbrella called the Ultimate Shade (US). The special-order umbrellas with the Lost Mine Company logo would be distributed to participants at an upcoming convention sponsored by Lost Mine.

Lost Mine has offered to buy 1,800 of the US umbrellas at a price of $14 each. Mohave currently has the excess capacity necessary to accept the offer. The following information is related to the production of the US umbrella:

Direct materials $ 6.00
Direct labor 3.00
Variable manufacturing overhead 2.50
Fixed manufacturing overhead 2.50
Total cost $ 14.00
Regular sales price $ 22.00

Required:

1. Compute the incremental profit (or loss) from accepting the special order.

2. Should Mohave accept the special order?

3. Suppose that the special order had been to purchase 2,300 umbrellas for $9.00 each. Recompute the incremental profit (or loss) from accepting the special order under this scenario.

4. Assume that Mohave is operating at full capacity. Calculate the special-order price per unit at which Mohave would be indifferent between accepting or rejecting the special order.

Reference no: EM131914859

Questions Cloud

What is the interest income that must be eliminated : Based on the information given above, what is the interest income that must be eliminated in preparing the 20x17 consolidated financial statements?

What is the amount of outstanding checks at end of november : In the month of November, Crane Company Inc. wrote checks in the amount of $9, 440. What is the amount of outstanding checks at the end of November?

What should be the reported value of montanas inventory : Montana Co. has determined its year-end inventory on a FIFO basis to be $646,000. What should be the reported value of Montana's inventory?

Calculate the cost of inventory as of june thirty : During the month of June, Ace Incorporated purchased goods from two suppliers. Calculate the cost of inventory as of June 30.

Compute the incremental profit from accepting special order : Compute the incremental profit from accepting the special order. Should Mohave accept the special order?

Identify minimum transfer price that molding division accept : The Molding Division of Cotwold Company manufactures a plastic casing used. Identify the minimum transfer price that the Molding Division will accept.

What is the amount of the make-up guarantee : Under a modified wage plan, an employee earns $1.50 for each finished unit and is guaranteed $18 per hour. what is the amount of the make-up guarantee?

Compute difference in cost between making and buying bag : Compute the difference in cost between making and buying the umbrella tote bag. Differential Cost of Making Versus Buying?

Is the contract enforceable against weaver : Weaver leased a service station from American Oil. The lease included a clause providing that Weaver would hold American Oil harmless for any negligence.

User Account

All Pages