Green Grow Inc. (GGI) manufactures lawn fertilizer. Because of the product’s very high quality, GGI often receives special orders from agricultural research groups. For each type of fertilizer sold, each bag is carefully filled to have the precise mix of components advertised for that type of fertilizer. GGI’s operating capacity is 35,000 one-hundred-pound bags per month, and it currently is selling 33,000 bags manufactured in 33 batches of 1,000 bags each. The firm just received a request for a special order of 9,000 one-hundred-pound bags of fertilizer for $200,000 from APAC, a research organization. The production costs would be the same, but there would be no variable selling costs. Delivery and other packaging and distribution services would cause a one-time $4,800 cost for GGI. The special order would be processed in two batches of 4,500 bags each. (No incremental batch-level costs are anticipated. Most of the batch-level costs in this case are short-term fixed costs, such as salaries and depreciation.) The following information is provided about GGI’s current operations: Sales and production cost data for 33,000 bags, per bag: Sales price $ 46 Variable manufacturing costs 14 Variable selling costs 3 Fixed manufacturing costs 20 Fixed marketing costs 6 No marketing costs would be associated with the special order. Because the order would be used in research and consistency is critical, APAC requires that GGI fill the entire order of 9,000 bags. Assume that the $20.00 fixed manufacturing overhead cost per unit consists of facility-level costs ($17.00/unit at the 33,000-unit output level), with the remainder being set-up-related (i.e., batch-level) costs. Assume that the set-up related costs increase in total with the number of batches produced and that the facility-level fixed costs do not vary in total, either with the number of units produced or the number of batches produced during a period. Required: 1. What is the total fixed manufacturing overhead cost for the period? Break down (that is, decompose) this total cost into its component parts (i.e., batch-related overhead costs and facility-related fixed overhead costs). 2. Calculate the relevant unit and total cost of the special order, including the new information about batch-related costs. Assume, as before, the one-time delivery cost of $4,800. question 1.What is the total fixed manufacturing overhead cost for the period? Break down (that is, decompose) this total cost into its component parts (i.e., batch-related overhead costs and facility-related fixed overhead costs). (Round your answers to the nearest whole dollar amount.)? 2. Calculate the relevant unit and total cost of the special order, including the new information about batch-related costs. Assume, as before, the one-time delivery cost of $4,800. (Round the total cost to the nearest whole dollar amount and "per-unit relevant cost" to 2 decimal places.)
1. Computing Total fixed manufacturing overheads.
Particulars | Basis | Amount ($) |
Facility related fixed overhead cost | 33000*26 | 858000 |
Batch Related cost | 3*33*1000 | 99000 |
Total Batches | 33 | |
Cost per Batch | 99000/33 | 3000 |
TOTAL BATCHES UNDER NEW ORDER | ||
Total batches required for special order | 2 | |
Normal Batches for others (35000-9000)/1000 | 26 | 28 |
Therefore , | 28*3000 | 84000 |
TOTAL FIXED MANUFACTURING OVERHEAD COST | 858000+84000 | 9,42,000 |
b
Relevant cost includes only variable cost .Marketing cost are not charged for special order ,Other relevant cost include one time delivery cost and opportunity cost due to loss on sales.
Particulars | Basis | Amount |
Variable Manufacturing Overhead | 14*9000 | 126000 |
plus :- One time cost | 4800 | |
130800 | ||
Opportunity cost | ||
Loss of normal sale | (33000+9000-35000)=7000 | |
Opportunity Cost | 7000*(46-14-3) | 203000 |
Total Relevant Cost | 333800 |
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