Question

Patel Company made 100,000 electric drills in batches of 1,000 units each during the prior accounting period. Normally, Patel markets its products through a variety of hardware stores. The following is the summarized cost to produce electric drills.
Materials cost ($10.00 per unit x 100,000) .......... $1,000,000
Labor cost ($6.00 per unit x 100,000) ............ 600,000
Manufacturing supplies ($0.50 x 100,000) .......... 50,000
Batch-level costs (100 batches at $2,000 per batch) ...... 200,000
Product-level costs .................. 150,000
Facility-level costs .................. 180,000
Total costs ..................... $2,180,000
Cost per unit = $2,180,000 ÷ 100,000 = $21.80

Required
a. Bypassing Patel’s regular distribution channel, Coleman’s Home Maintenance Company has offered to buy a batch of 500 electric drills for $19.50 each directly from Patel. Patel’s normal selling price is $27 per unit. Based on the preceding quantitative data, should Patel accept the special order? Support your answer with appropriate computations.
b. Would your answer to Requirement a change if Coleman’s offered to buy a batch of 1,000 electric drills for $19.50 each? Support your answer with appropriate computations.
c. Describe the qualitative factors that Patel should consider before accepting a special order to sell electric drills to Coleman’s.



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  • CreatedFebruary 07, 2014
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