Question : 66. Quality Products produces and sells screen-printed t-shirts to local organizations. : 1295622

66. Quality Products produces and sells screen-printed t-shirts to local organizations. The normal sales price per shirt is $12. Due to setup costs, they only accept orders of at least 100 shirts. The setup cost per order is $40 and the variable costs per shirt are $3. Fixed overhead costs per month total $2,000. Quality Products has the capacity to screen-print as many as 5,000 shirts per month, but is currently producing around 3,000. On May 1, the company was approached by a local non-profit group who wishes to place a single order for 100 shirts. The non-profit group has indicated that they can only pay $5 per shirt.Required: 

A.

List two qualitative factors that should be considered by Quality Products before accepting the special order?

B.

What are the total relevant costs of accepting the special order?

C.

From a quantitative basis, should they accept the special order? By what amount will Quality Product’s net income increase or decrease if they accept the special order?

67. American Motors manufactures automobiles. Currently, the company manufactures its own carpet mats with the following unit cost per set when 20,000 sets are manufactured: 

Direct materials

$ 15.00

Direct labor

  20.00

Variable overhead

    8.00

Fixed overhead

          4.00

Total

$ 47.00

Another manufacturer has offered to supply American Motors with the mats at a cost of $45.00 per set. If American outsources the making of the carpet mats, fixed overhead costs are expected to decrease by 60%.Required: 

A.

List at least two qualitative factors that American Motors should consider in this make or buy decision.

B.

What are the relevant costs per set of making the carpet mats themselves?

C.

What are the relevant costs per set of outsourcing the carpet mats?

D.

From a quantitative basis, should they make or buy the carpet mats? By what amount will the company’s net income increase or decrease if they outsource? Show calculations.

68. Ergo Products manufactures a variety of ergonomic household tools including a cordless drill. The cordless drill comes with a battery recharger. Currently, the company manufactures its own recharger for the drill with the following unit costs: 

Direct materials

$   3.00

Direct labor

$   3.00

Variable overhead

$   1.00

In addition, when 5,000 rechargers are produced each year, Ergo applies $2 of fixed overhead costs to each recharger. Another manufacturer has offered to supply Ergo with a recharger at a cost of $8 each. If Ergo accepts the offer, 80% of the fixed overhead allocated to the rechargers will be avoidable.Required: 

A.

List at least two qualitative factors that Ergo Products should consider in this make or buy decision.

B.

What is the relevant cost of each recharger if they make it themselves?

C.

What is the relevant cost of each recharger if they outsource?

D.

From a quantitative basis, should they make or buy the rechargers? By what amount will the company’s net income increase or decrease if they outsource?