Sequoia Paper Products, Inc., manufactures boxed stationery for sale to specialty shops. Currently, the company is operating
Question:
Direct materials......$1.87
Direct labor ........ 0.33
Variable overhead ...... 0.08
Fixed overhead ...... 2.10
Total cost per box ......$4.38
Fixed overhead is $420,000 per year and will not be affected by the special order. Normally, there is a commission of 5 percent of price; this will not be paid on the special order since the drugstore chain is dealing directly with the company. The special order will require additional fixed costs of $14,300 for the design and setup of the machinery to stamp the drugstore chain’s logo on each box.
Required:
1. List the alternatives being considered. List the relevant benefits and costs for each alternative.
2. Which alternative is more cost effective and by how much?
3. What if Sequoia Paper Products was operating at capacity and accepting the special order would require rejecting an equivalent number of boxes sold to existing customers? Which alternative would be better?
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Related Book For
Cornerstones of Cost Management
ISBN: 978-1285751788
3rd edition
Authors: Don R. Hansen, Maryanne M. Mowen
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