Reference no: EM13515625
Relevant costs, special sales order-idle versus full capacity The Delmar Beverage Co. produces a premium root beer that is sold throughout its chain of restaurants in the Midwest. The company is currently producing 4,000 gallons of root beer per day, which represents 80% of its manufacturing capacity. The root beer is available to restaurant customers by the mug, in bottles, or packaged in six-packs to take home. The selling price of a gallon of root beer averages $10, and cost accounting records indicate the following manufacturing costs per gallon of root beer:
|
Raw materials
|
$3.20
|
|
Direct labor
|
1.6
|
|
Variable overhead
|
1
|
|
Fixed overhead
|
2.2
|
|
Total absorption cost
|
$8.00
|
In addition to the manufacturing costs just described, Delmar Beverage incurs an average cost of $0.50 per gallon to distribute the root beer to its restaurants.
SaveMore, Inc., a chain of grocery stores, is interested in selling the premium root beer in gallon jugs throughout its stores in the St. Louis area during holiday periods and has offered to purchase root beer from Delmar Beverage at a price of $7.70 per gallon. SaveMore believes it could sell 600 gallons per day. If Delmar Beverage agrees to sell root beer to SaveMore, it estimates the average distribution cost will be $0.70 per gallon.
Required:
a. Identify all the relevant costs that Delmar Beverage should consider in evaluating the special sales order from SaveMore.
b. How would Delmar Beverage's daily operating income be affected by the acceptance of this offer?
c. Assume that Delmar Beverage is currently producing 5,000 gallons of root beer daily. Repeat requirements a and b.
d. Explain why your answers are different when Delmar Beverage is producing 4,000 gallons per day versus 5,000 gallons per day.
|
Compute the cost of each model assembled in august
: Howrley-David uses operations costing and assigns conversion costs based on the number of units assembled. Compute the cost of each model assembled in August.
|
|
Compute cost unit of each brand of coffee produced in feb.
: Organic Grounds uses operations costing and assigns conversion costs based on the number of pounds of coffee produced. Compute the cost unit of each brand of coffee produced in February.
|
|
How much of the underapplied overhead
: Manufacturing overhead is applied on the basis of direct labor costs. How much of the underapplied overhead should be allocated to finished goods? A. 2.850 B. 1,900 C. 4,750 D. 9,500
|
|
What is average collection period for accounts receivable
: The financial statements of the Melton Manufacturing Company reports net sales of $300,000 and accounts receivable of $50,000 and $30,000 at the beginning of the year and end of year, respectively. What is the average collection period for accoun..
|
|
Evaluating the special sales order
: Identify all the relevant costs that Delmar Beverage should consider in evaluating the special sales order from SaveMore and how would Delmar Beverage's daily operating income be affected by the acceptance of this offer?
|
|
Basic option strategies
: Which of the following statements is most correct regarding the writing of covered calls?
|
|
Explain the melting ice dilutes the concentrated acids
: Chemical Syntheis :At the end of the reaction you are to add ice. Which of the following are reasons for the adding ice. The melting ice dilutes the concentrated acids. The ice cools the reaction thus slowing it down to the point where it is effectiv..
|
|
Find the net present value of the proposed investment
: Calculate the net present value of the proposed investment in the drilling and production operation. Assume that the investment will be made at the beginning of 2010
|
|
Explain chemical syntheis can be characterized as consisting
: Chemical Syntheis can be characterized as consisting of three basic processes: making chemicals, isolating the products and characterization. Each process is carried out using one or more techniques. Match the following technique with the process.
|