Directions: Answer all three questions.?Please submit your work in Word or PDF formats only.You can submit an Excel file to support calculations, but please ?cut and paste? your solutions into the Word or PDF file. Be sure to show how you did your calculations. Also, please be sure to include your name at the top of the first page of your
ACT 5140 ? Accounting for Decision Makers
HW #5 ? Chapter 4
Directions: Answer all the questions. Please submit your work in Word or PDF formats only.
You can submit an Excel file to support calculations, but please ?cut and paste? your
solutions into the Word or PDF file. Be sure to show how you did your calculations. Also,
please be sure to include your name at the top of the first page of your file.
Consider the following information, prepared based on a monthly capacity of 80,000 units:
Variable manufacturing costs
Fixed manufacturing costs
Variable selling costs
Fixed selling costs
Cost per Unit
Capacity cannot be added in the month and the firm currently sells the product for $40 per unit.
Consider each of these scenarios independent of each other.
a) The company is currently producing 72,000 units per month. A potential customer has
contacted the firm and offered to purchase 8,000 units this month only. The customer is
willing to pay $33 per unit. Since the potential customer approached the firm, there will be no
variable selling costs incurred. Should the company accept the special order? Why or why
not? Be specific.
b) Assume the same facts as in part a, except that the company is producing 80,000 units per
month. Should the company accept the special order? Why or why not? Be specific.
c) List and describe other factors (not those addressed in parts a and b) that should be taken into
consideration when deciding whether to accept a special order? Be specific in your
Consider the following information, prepared based on monthly production and sales of 50,000
Variable manufacturing costs
Variable marketing costs
Cost per Unit
The firm has total fixed costs of $250,000 and currently sells the product for $15 per unit.
a) Assume the company is producing and selling 50,000 units per month. It is considering
an arrangement where an outside manufacturer would produce and ship the product
directly to customers. Under this arrangement, variable marketing costs would decrease
40% per unit and $80,000 in fixed costs would be avoided. What is the maximum amount
per unit the company would be willing to pay to the outside manufacturer?
b) List and describe other factors that should be taken into consideration when deciding
whether to accept this offer. Be specific in your responses.
A consulting company performs a ?basic? market analysis for a client. It incurs costs of $15,000
in performing the analysis and plans to sell the report to the client for $33,000. After reviewing
the initial report, the client asks the firm if it is willing to do a more extensive report. The client
offers to pay $65,000 for a more extensive report. If the more extensive report is done, the client
will NOT pay the $33,000. If the consulting firm estimates it will require $22,000 in additional
expenses to complete the more extensive report, should it agree to do the more extensive report?
Why or Why not? Be specific in your response.
Assume an engineering company provides services for three types of clients. Each service
requires a different amount of a specific form of specialized labor that is in limited supply.
If the company is limited to 14,000 hours of this specialized labor, how many clients of each
type should it accept in order to maximize operating income?
Revenue per client
Variable costs per client
Specialized labor hours required per client
Maximum clients available
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