Question

Andreasen Corporation manufactures thermostats for office buildings. The following is the cost of each unit. Materials $ 36.00 Labor 14.00 Variable overhead 4.00 Fixed overhead ($1,890,000 per year; 105,000 units per year) 18.00 Total $ 72.00 Simpson Company has approached Andreasen with an offer to buy 8,000 thermostats at a price of $60 each. The regular price is $100. Andreasen has the capacity to produce the 8,000 additional units without affecting its current production of 105,000 units. Simpson requires that each unit use its branding, which requires a more expensive label, resulting in an additional $2.00 per unit material cost. The labor cost of affixing the label will be the same as for the current models. The Simpson order will also require a one-time rental of packaging equipment for $30,000. Required: a. Prepare a schedule to show the impact of filling the Simpson order on Andreasen's profits for the year. b. Do you agree with the decision to accept the special order? c. Considering only profit, determine the minimum quantity of thermostats in the special order that would make it profitable, assuming capacity is available.

Answer 1

Answer:

Instructions are listed below

Explanation:

Giving the following information:

The following is the cost of each unit:

Materials $ 36.00

Labor 14.00

Variable overhead 4.00

Fixed overhead ($1,890,000/105,000 units) 18.00

Total $ 72.00

Simpson Company has approached Andreasen with an offer to buy 8,000 thermostats for $60 each. The regular price is $100.

Simpson requires that each unit use its branding, which requires a more expensive label, resulting in an additional $2.00 per unit material cost. The Simpson order will also require a one-time rental of packaging equipment for $30,000.

Because this is a special offer and we have unused capacity, we will not have into account the fixed costs.

A)

Costs:

Materials $ 36.00

Labor 14.00

Variable overhead 4.00

Label= 2

Total variable cost= $56

Total cost= 56*8000 + 30000= $478,000

B) Sales= 8000*60= $480,000

Costs= 478,000

Gross profit= 2,000

The offer is profitable.

C) break-even point= fixed costs/ contributionmargin= 30000/ (60-56)= 7500 units