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Cornerstones of Cost Accounting 1st Edition by Don Hansen,Maryanne Mowen
Edition 1ISBN: 978-0538736787Cornerstones of Cost Accounting 1st Edition by Don Hansen,Maryanne Mowen
Edition 1ISBN: 978-0538736787 Exercise 19
SPECIAL-ORDER DECISION, ALTERNATIVES, RELEVANT COSTS
Aspen Leaf Paper Products, Inc., manufactures boxed stationery for sale to specialty shops. Currently, the company is operating at 90 percent of capacity. A chain of drugstores has offered to buy 50,000 boxes of Aspen Leaf's blue-bordered thank-you notes as long as the box can be customized with the drugstore chain's logo. While the normal selling price is $3.00 per box, the chain has offered just $2.45 per box. Aspen Leaf Paper Products can accommodate the special order without affecting current sales. Unit cost information for a box of thank-you notes follows:
Fixed overhead is $420,000 per year and will not be affected by the special order. Normally, there is a commission of 10 percent of price; this will not be paid on the special order since the drugstore chain is dealing directly with the company. The special order will require additional fixed costs of $16,000 for the design and setup of the machinery to stamp the drugstore chain's logo on each box.
Required:
1. List the alternatives being considered. List the relevant benefits and costs for each alternative.
2. Which alternative is more cost effective and by how much?
3. What if Aspen Leaf Paper Products was operating at capacity and accepting the special order would require rejecting an equivalent number of boxes sold to existing customers? Which alternative would be better?
Aspen Leaf Paper Products, Inc., manufactures boxed stationery for sale to specialty shops. Currently, the company is operating at 90 percent of capacity. A chain of drugstores has offered to buy 50,000 boxes of Aspen Leaf's blue-bordered thank-you notes as long as the box can be customized with the drugstore chain's logo. While the normal selling price is $3.00 per box, the chain has offered just $2.45 per box. Aspen Leaf Paper Products can accommodate the special order without affecting current sales. Unit cost information for a box of thank-you notes follows:
Fixed overhead is $420,000 per year and will not be affected by the special order. Normally, there is a commission of 10 percent of price; this will not be paid on the special order since the drugstore chain is dealing directly with the company. The special order will require additional fixed costs of $16,000 for the design and setup of the machinery to stamp the drugstore chain's logo on each box.
Required:
1. List the alternatives being considered. List the relevant benefits and costs for each alternative.
2. Which alternative is more cost effective and by how much?
3. What if Aspen Leaf Paper Products was operating at capacity and accepting the special order would require rejecting an equivalent number of boxes sold to existing customers? Which alternative would be better?
Explanation
Verified
Verified
1. Two alternatives are to accept or rej...
Cornerstones of Cost Accounting 1st Edition by Don Hansen,Maryanne Mowen
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