Sam , a salesperson of Comfort Clothing has been approached by Garment, a clothing retailer, interested in purchasing clothing from Comfort Clothing. The retailer would like to purchase 17,000 Fleece Hoddie for $16.50 per hoddie. Garment would require each hoddie to display the Garment name on each hoddie. This will require an additional cost of $0.45 per hoddie. Comfort Clothing production capacity is 80,000 hoddies and current production for current customers is 60,000 hoddies. Current selling price to current customers is $18.50 per unit.

Current per unit cost of producing and selling to current customers:

Direct materials per unit                   $7.50

Direct labour per unit                       $3.50

Variable overhead per unit              $0.75

Commission per unit                        $0.40

Fixed production                              $55,000 ($0.55 per unit)

Fixed selling expenses                    $15,000 ($0.15 per unit)

To facilitate acceptance of the order, Sam has agreed to a reduction in sales commission to $0.05 per unit for each unit sold to Garment.

Required:

A. What is the cost of producing one unit for  Garment?

B. What is the increase or decrease in income for  Comfort Clothing if the order from Garment is accepted? Should the order be accepted?

C.  Assume sales to current customers is 70,000 units. What would be the increase or decrease in income if the order from Garment is accepted.Should the order be accepted? 

D. Referring to what qualitative factors   should Comfort Clothing consider?

Answer rating: 100% (QA)

A Cost of Producing One Unit for Garment Total Incremental Cost per Unit 045 Direct Materials 350 Direct Labour 075 Variable Overhead 040 Commission 0... View the full answer