Question

Stuart Quilting Company makes blankets that it markets through a variety of department stores. It makes the blankets in batches of 6,000 units. Stuart made 36,000 blankets during the prior accounting period. The cost of producing the blankets is summarized here.

Materials cost ($33 per unit × 36,000)	$	1,188,000
Labor cost ($29 per unit × 36,000)		1,044,000
Manufacturing supplies ($7 × 36,000)		252,000
Batch-level costs (6 batches at $6,000 per batch)		36,000
Product-level costs		280,000
Facility-level costs		350,000
Total costs	$	3,150,000
Cost per unit = $3,150,000 ÷ 36,000 = $87.5

Required

1. Sunny Motels has offered to buy a batch of 500 blankets for $60 each. Stuart’s normal selling price is $96 per unit. Calculate the relevant cost per unit for the special order. Based on the preceding quantitative data, should Stuart accept the special order?

2. Sunny offered to buy a batch of 6,000 blankets for $75 per unit, calculate the relevant cost per unit for the special order. Should Stuart accept the special order?

Answer 1

Answer :

(a). Evaluation of Sunny motels offere

Items	Total cost	No.of units	Per unit cost
Material cost			$33.00
Labor cost			$29.00
Manufacturing supplies			$7.00
Batch - Level costs	$6,000	500	$12.00
Total Relevant cost			$81.00
Price offered			$60.00

• No, Sunny motel offer should not be accepted because price offered is less than relavant cost of producing the balanket.

(b). Evaluation of Sunny offfer

Items	Total cost	No.of units	Per unit cost
Material cost			$33.00
Labor cost			$29.00
Manufacturing supplies			$7.00
Batch - Level costs	$2,000	6,000	$0.33
Total Relevant cost			$69.33
Price offered			$75.00

• Yes, Sunny motel offer should be accepted because price offered is more than relvant cost of producting the balanket