Question

Problem 13-24Effect of order quantity on special order decision

Levy Quilting Company makes blankets that it markets through a variety of department stores. It makes the blankets in batches of 1,000 units. Levy made 20,000 blankets during the prior accounting period. The cost of producing the blankets is summarized as follows.

Materials cost ($20 per unit × 20,000)	$   400,000
Labor cost ($18 per unit × 20,000)	360,000
Manufacturing supplies ($3 × 20,000)	60,000
Batch-level costs (20 batches at $4,000 per batch)	80,000
Product-level costs	160,000
Facility-level costs	290,000
Total costs	$1,350,000
Cost per unit = $1,350,000 ÷ 20,000 = $67.50

Required

a.Rios Motels has offered to buy a batch of 500 blankets for $47 each. Levy’s normal selling price is $90 per unit. Based on the preceding quantitative data, should Levy accept the special order? Support your answer with appropriate computations.

b.Would your answer to Requirement a change if Rios offered to buy a batch of 1,000 blankets for $56 per unit? Support your answer with appropriate computations.

c.Describe the qualitative factors that Levy Quilting Company should consider before accepting a special order to sell blankets to Rios Motels.

Answer 1