Reference no: EM132754208

Lansing Camera Company has received a special order for photographic equipment that it does not normally produce. The company has spare capacity and the order could be manufactured without reducing production of the firm's regular products.

Required:

Problem 1: Discuss the relevance of each of the following items in calculating the cost of the special order

1) Equipment to be used in producing the order has a carrying amount of $2 000. Lansing Camera Company has no other use for this equipment. If the order is not accepted, the equipment will be sold for $1 500. If the equipment is used in producing the order, it can be sold in three months for $800.

2) If the special order is accepted, the operation will require some of the storage space in the company's plant. If the space is used for this purpose, the company will rent storage space temporarily in a nearby warehouse at a cost of $18 000. The building depreciation allocated to the storage space to be used in producing the special order is $12 000.

3) If the special order is accepted, it will require a sub-assembly. Lansing Camera Company can purchase the sub-assembly for $24 per unit from an outside supplier, or the company can make it for $30 per unit. The $30 cost per unit was determined as follows:

Direct material $10.00
Direct labour 6.00
Variable 6.00
Allocated fixed overhead 8.00
Total unit cost of sub-assembly $30.00