Question

Roe and Adler, LLC produce fabric covers for passenger seats used in small private airplanes. Each cover is customized with the customer's choice of size, color, fabric, and logo, in addition to meeting FAA standards and requirements. Roe and Adler uses a job cost system and allocates manufacturing overhead based on direct labor hours. These are the most recent cost estimates per seat: Direct materials 29.00 Direct labor 5.00 Manufacturing overhead 9.00 Total per seat $43.00 Rose and Adler, LLC received an order in January for 48 seat covers. At the time of this order, the selling price of one seat cover was $107.50. Delivery of the seat covers is due in April. Since the original order was placed, the same company has placed an additional order for 12 more seat covers to be delivered at the same time as the original 48 seat cover order. Since the original order was placed in January, unforeseen world events have occurred that have increased the costs of making the covers. The first issue is an increase in the price of dye used in the fabric for the seat covers. The second issue is that a new textile manufacturer is opening nearby and offering to pay a higher wage and aggressively seeking to hire experienced labor. Due to these events, these are the new costs estimates: Direct materials 30.00 Direct labor 6.50 Manufacturing overhead 11.70 Total per seat $48.20 Discuss Do you agree with the cost analysis for the second order? Explain your answer: Should the two orders be accounted for as one job or as two jobs? What sales price per cover should they set for the second order? Explain why you selected this price, as well as the advantages and disadvantages of this price.

Answer 1