Question

Gleam Clean cleans and waxes floors for commercial customers. The company is presently operating at less than capacity with equipment and employees idle at times. The company recently received an order from a potential customer outside the company's normal geographic service region for a price of $32,000. The size of the proposed job is 45,000 square feet. The company's normal service costs are as follows: Unit-level materials $0.41 per square foot Unit-level labor $0.48 per square foot Unit-level variable overhead $0.31 per square foot Facility-level overhead Allocated at $0.33 per square footIf the company accepts the special offer:a. The company will earn $13,550 on the job.b. The company will lose $8,050 on the job.c. The company will lose $22,000 on the job.d. The company will lose $36,850 on the job.

Answer 1

Answer:

C. The company will lose $22,000 on the job.

Explanation:

The computation of Income from Special order is shown below:-

                                                 Particulars    Amount

Revenue from Special Order   $32,000

Variable Costs:  

Materials Cost                     $18,450

(45,000 × $0.41)

Labor Cost                                 $21,600

(45,000 × $0.48)

Variable Overhead               $13,950

(45,000 × $0.31)

Total Variable Cost                  $54,000

Income from Special order    ($22,000)

(32,000 -54,000)

Note:Fixed costs are irrelevant, since even if special orders are not accepted.