# Acc221 Accounting Principles: P26-1A Korte Company is currently producing 16,000 units per month

Acc221 Accounting Principles

P26-1A

Korte Company is currently producing 16,000 units per month, which is 80% of its production capacity. Variable manufacturing costs are currently $8.00 per unit. Fixed manufacturing costs are $56,000 per month. Korte pays a 9% sales commission to its sales people, has $30,000 in fixed administrative expenses per month, and is averaging $320,000 in sales per month. A special order received from a foreign company would enable Korte Company to operate at 100% capacity. The foreign company offered to pay 75% of Korte's current selling price per unit. If the order is accepted, Korte will have to spend an extra $2.00 per unit to package the product for overseas shipping. Also, Korte Company would need to lease a new stamping machine to imprint the foreign company's logo on the product, at a monthly cost of $2,500. The special order would require a sales commission of $3,500.

Instructions

Compute the following:

a. Units for special order. (Round answer to 0 decimal places, e.g. 125.)

Foreign company's offered price per unit $ (Round answer to 2 decimal places, e.g. 10.50.)

b. What is the manufacturing cost of producing one unit of Korte's product for regular customers? (Round answer to 2 decimal places, e.g. 10.50.)

c. Complete an incremental analysis of the special order. (If an amount should be blank, enter a zero. All boxes must be filled to be correct. If amount decreases net income, use either a negative sign preceding the number eg -45 or parentheses eg (45).) Should management accept the order?

d. What is the lowest price that Korte could accept for the special order to earn net income of $1.20 per unit? (Round answer to 2 decimal places, e.g. 10.50.)

e. What nonfinancial factors should management consider in making its decision?

P26-1A

Korte Company is currently producing 16,000 units per month, which is 80% of its production capacity. Variable manufacturing costs are currently $8.00 per unit. Fixed manufacturing costs are $56,000 per month. Korte pays a 9% sales commission to its sales people, has $30,000 in fixed administrative expenses per month, and is averaging $320,000 in sales per month. A special order received from a foreign company would enable Korte Company to operate at 100% capacity. The foreign company offered to pay 75% of Korte's current selling price per unit. If the order is accepted, Korte will have to spend an extra $2.00 per unit to package the product for overseas shipping. Also, Korte Company would need to lease a new stamping machine to imprint the foreign company's logo on the product, at a monthly cost of $2,500. The special order would require a sales commission of $3,500.

Instructions

Compute the following:

a. Units for special order. (Round answer to 0 decimal places, e.g. 125.)

Foreign company's offered price per unit $ (Round answer to 2 decimal places, e.g. 10.50.)

b. What is the manufacturing cost of producing one unit of Korte's product for regular customers? (Round answer to 2 decimal places, e.g. 10.50.)

c. Complete an incremental analysis of the special order. (If an amount should be blank, enter a zero. All boxes must be filled to be correct. If amount decreases net income, use either a negative sign preceding the number eg -45 or parentheses eg (45).) Should management accept the order?

d. What is the lowest price that Korte could accept for the special order to earn net income of $1.20 per unit? (Round answer to 2 decimal places, e.g. 10.50.)

e. What nonfinancial factors should management consider in making its decision?

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