Exercise 4-40 Special Order (LO 4-1, 2)Fairmount Travel Gear produces backpacks and sells them...

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Accounting

Exercise 4-40 Special Order (LO 4-1, 2)
Fairmount Travel Gear produces backpacks and sells them tovendors who sell them under their own label. The cost of one of itsbackpacks follows:?
Materials $27.00
Labor 18.00
Variable overhead 7.50
Fixed overhead ($405,000 per year, 45,000 units per year)$9.00
Total $61.50
Riverside Discount Mart, a chain of low-price stores, has askedFairmount to supply it with 3,000 backpacks for a special promotionRiverside is planning. Riverside has offered to pay Fairmount aunit price of $63 per pack. The regular selling price is $90. Thespecial order would require some modification to the basic model.These modifications would add $6.00 per unit in material cost,$2.50 per unit in labor cost, and $0.70 in variable overhead cost.Although Fairmount has the capacity to produce the 3,000 unitswithout affecting its regular production of 45,000 units, aone-time rental of special testing equipment to meet Riverside’srequirements would be needed. The equipment rental would be $7,500and would allow Fairmount to test up to 5,000 units.
Required a. Prepare a schedule to show the impact of filling theRiverside order on Fairmont’s profits for the year. (Enter youranswers in thousands rounded to 1 decimal place. (i.e., 5,400,400should be entered as 5,400.4). Select option "higher" or "lower",keeping Status Quo as the base. Select "none" if there is noeffect.)
b. Do you agree with the decision to accept the special order?Yes or No
c. Considering only profit, determine the minimum quantity ofbackpacks in the special order that would make it profitable. (Donot round intermediate calculations.)

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4.1 Ratings (712 Votes)

Solution a Fairmount Travel Gear All figures in thousands Particulars Status Quo 45000 Units Regular Sales Special order 48000 units Difference Amount See Answer

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In: AccountingExercise 4-40 Special Order (LO 4-1, 2)Fairmount Travel Gear produces backpacks and sells them to...Exercise 4-40 Special Order (LO 4-1, 2)Fairmount Travel Gear produces backpacks and sells them tovendors who sell them under their own label. The cost of one of itsbackpacks follows:?Materials $27.00Labor 18.00Variable overhead 7.50Fixed overhead ($405,000 per year, 45,000 units per year)$9.00Total $61.50Riverside Discount Mart, a chain of low-price stores, has askedFairmount to supply it with 3,000 backpacks for a special promotionRiverside is planning. Riverside has offered to pay Fairmount aunit price of $63 per pack. The regular selling price is $90. Thespecial order would require some modification to the basic model.These modifications would add $6.00 per unit in material cost,$2.50 per unit in labor cost, and $0.70 in variable overhead cost.Although Fairmount has the capacity to produce the 3,000 unitswithout affecting its regular production of 45,000 units, aone-time rental of special testing equipment to meet Riverside’srequirements would be needed. The equipment rental would be $7,500and would allow Fairmount to test up to 5,000 units.Required a. Prepare a schedule to show the impact of filling theRiverside order on Fairmont’s profits for the year. (Enter youranswers in thousands rounded to 1 decimal place. (i.e., 5,400,400should be entered as 5,400.4). Select option "higher" or "lower",keeping Status Quo as the base. Select "none" if there is noeffect.)b. Do you agree with the decision to accept the special order?Yes or Noc. Considering only profit, determine the minimum quantity ofbackpacks in the special order that would make it profitable. (Donot round intermediate calculations.)