In March the Klassic Clothing Company started working on a special order of fall suits ordered by
Question:
In March the Klassic Clothing Company started working on a special order of fall suits ordered by Winston?s, a regional chain of specialty stores in the southeast United States. Winston?s agreed to pay $800,000 for the suits. When the order was nearly finished, there was a complete management change in Winston?s, and the buyer who had ordered from Klassic was replaced. The new buyer wanted the fall clothes to reflect only her own taste, and she canceled the order from Kalssic. The president of Klassic called other firms in an effort to sell the suits and got an offer of $536,000. The sales manager frantically called other companies to try to get a better offer. Redburns, a group of stores in the Northeast, offered $600,000 for the suits if some distinctive buttons and more expensive trim could be added.
In order to decide what to do, the sales manager got the following information about the order from the production manager:
Costs to Date
Materials???????????????.$119,850
Direct labor (24,500 hours @ $5.50)????...134,750
Factory overhead @ $11 per hour??????265,400
Total?????????????????$520,000
The factory overhead rate includes $4.40 variable overhead and $6.60 fixed overhead. The production manager made the following estimates of the costs necessary to finish the order:
Required
a. What is the full cost of the job if:
1) The order is completed according to the original specifications?
2) the order is completed according to Redburns? specifications?
b. Which offer should the president accept? In your own words defend your answer.
Accounting for Decision Making and Control
ISBN: 978-0078025747
8th edition
Authors: Jerold Zimmerman