Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 21: Q21E (page 1172)

Setting sales prices The Sweet Treats Company manufactures candy that is sold to food distributors. The company produces at full capacity for six months each year to meet peak demand during the “candy season” from Halloween through Valentine’s Day. During the other six months of the year, the manufacturing facility operates at 75% of capacity. The Sweet Treats Company provides the following data for the year:

Cases of candy produced and sold 1,800,000 cases Sales price $ 37.00 per case Variable manufacturing costs 20.00 per case Fixed manufacturing costs 6,400,000 per year Variable selling and administrative costs 2.00 per case Fixed selling and administrative costs 3,500,000 per year The Sweet Treats Company receives an offer to produce 13,000 cases of candy for a special event. This is a one-time opportunity during a period when the company has excess capacity. What is the minimum sales price The Sweet Treats Company should accept for the order? Explain why

Short Answer

Expert verified

The minimum sales price per case should be $22.

Step by step solution

01

 Step 1: Minimum sales price when the company has excess capacity and has a one-time opportunity to accept the order

When the company has excess capacity and has a one-time opportunity to accept customer orders, the company should accept the order at variable cost

02

Calculation of minimum sales price

Minimum sales price = Variable manufacturing cost per case + Variable selling and administrative cost

=$20 + $2

=$22

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Using variable and absorption costing, making decisions

The 2018 data that follow pertain to Mike’s Magnificent Eyewear, a manufacturer of swimming goggles. (Mike’s Magnificent Eyewear had no beginning Finished Goods Inventory in January 2018.)

Number of goggles produced 245,000

Number of goggles sold 230,000

Sales price per unit \( 28

Variable manufacturing cost per unit 10

Sales commission cost per unit 2

Fixed manufacturing overhead 1,960,000

Fixed selling and administrative costs 260,000

Requirements:

  1. Prepare both conventional (absorption costing) and contribution margin (variable costing) income statements for Mike’s Magnificent Eyewear for the year ended December 31, 2018.
  2. Which statement shows the higher operating income? Why?
  3. Mike’s Magnificent Eyewear’s marketing vice president believes a new sales promotion that costs \)40,000 would increase sales to 235,000 goggles. Should the company go ahead with the promotion? Give your reasoning.

Preparing variable and absorption costing income statements

This problem continues the Piedmont Computer Problem situation from Chapter 20. Piedmont Computer Company manufactures personal computers and tablets. Based on the latest information from the cost accountant, using the current sales mix, the weighted-average sales price per unit is \(750 and the weighed-average variable cost per unit is \)450. The company does not expect the sales mix to vary for the next year. Assume the beginning balance in Finished Goods Inventory is \(0. Additional data for the first month of 2020:

January 2020

Unitsproduced and sold: Sales 945 units Production 1,000 units Variable manufacturing cost per unit \) 450 Sales commission cost per unit 25 Total fixed manufacturing overhead 93,600 Total fixed selling and administrative costs 62,400

Requirements

1. Compute the product cost per unit produced under absorption costing and under variable costing.

2. Prepare income statements for January 2020 using: a. absorption costing. b. variable costing.

3. Is operating income higher under absorption costing or variable costing in January? What causes the difference?

Explain how increasing production can increase gross profit when using absorption costing.

Question: Communication Activity 21-1

In 100 words or fewer, explain the main differences and similarities between variable costing and absorption costing.

Preparing variable and absorption costing income statements

Claudia’s Foods produces frozen meals that it sells for \(11 each. The company computes a new monthly fixed manufacturing overhead allocation rate based on the planned number of meals to be produced that month. Assume all costs and production levels are exactly as planned. The following data are from Linda’s Foods’s first month in business:

January 2018 Units produced and sold: Sales 850 meals Production 1,050 meals Variable manufacturing cost per meal \) 5Sales commission cost per meal 1 Total fixed manufacturing overhead 315Total fixed selling and administrative costs 450 Requirements

1. Compute the product cost per meal produced under absorption costing and under variable costing.

2. Prepare income statements for January 2018 using: a. absorption costing. b. variable costing.

3. Is operating income higher under absorption costing or variable costing in January?
See all solutions

Recommended explanations on Business Studies Textbooks

Managers

Read Explanation

Strategic Analysis

Read Explanation

Corporate Finance

Read Explanation

Introduction to Business

Read Explanation

Managerial Economics

Read Explanation

Nature of Business

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free