Fuller Company makes frames.A customer wants to place a special order for 600 frames in green with the company logo painted on the frame, to be priced at $40 each.Normally, Fuller would charge $90 per frame for this type of order.Fuller figures that wood and glass will cost $16 per frame, variable overhead (machining, electricity) is $4 per frame, direct labor is $12 per frame, and one setup will be required at $1,000 per setup.The set-up charge costs are 100% labor.Currently, the workers needed to set up for and make the frames are working at Fuller.Their wages will be paid whether or not the special order is accepted.Fuller's policy is to avoid layoffs to the extent possible.
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Which of the following is irrelevant to the special order decision?
A) cost of wood and glass
B) direct labor cost
C) machining and electricity cost
D) $40 price
E) All of these are relevant.

Question

Fuller Company makes frames.A customer wants to place a special order for 600 frames in green with the company logo painted on the frame, to be priced at $40 each.Normally, Fuller would charge $90 per frame for this type of order.Fuller figures that wood and glass will cost $16 per frame, variable overhead (machining, electricity) is $4 per frame, direct labor is $12 per frame, and one setup will be required at $1,000 per setup.The set-up charge costs are 100% labor.Currently, the workers needed to set up for and make the frames are working at Fuller.Their wages will be paid whether or not the special order is accepted.Fuller's policy is to avoid layoffs to the extent possible. 
-  
Which of the following is irrelevant to the special order decision?
A) cost of wood and glass
B) direct labor cost
C) machining and electricity cost
D) $40 price
E) All of these are relevant.

Quizplus · Accepted Answer

The direct labor cost for setting up the order is irrelevant to the special order decision because the workers will be paid whether or not the special order is accepted, indicating that this cost is a sunk cost and does not change with the decision to accept or reject the special order.

Fuller Company Makes Frames