Question

Dalton quilting company makes blankets that it markets through a variety of department stores. It makes the blankets in batches of 1,080 units. Dalton made 20,800 blankets during the prior accounting period. The cost of producing the blankets is summarized here. Materials cost (10 per unit �� 20,800)208,000, labor cost (9 per unit �� 20,800)187,200, manufacturing supplies (1.50 �� 20,800)31,200, batch-level costs (20 batches at 2,376 per batch)47,520, product-level costs 83,200, facility-level costs150,800, total costs 707,920. Cost per unit =707,920 �� 20,800 = 34.03. Sunny Motels has offered to buy a batch of 540 blankets for24 each. Dalton's normal selling price is 45 per unit. Calculate the relevant cost per unit for the special order. Based on the preceding quantitative data, should Dalton accept the special order? Sunny offered to buy a batch of 1,080 blankets for24 per unit. Calculate the relevant cost per unit for the special order. Should Dalton accept the special order?

Answer 1

To determine if Dalton should accept Sunny Motels' special order, the relevant cost of $20.50 per unit, which is less than the offer price of $24, indicating that Dalton should accept the offer as it would make a profit of $3.50 per unit, assuming no extra batch-level costs.

Step-by-step explanation:

The question pertains to the production and costs related to Dalton quilting company's blankets. To calculate the relevant cost per unit for the special order from Sunny Motels, we need to consider only variable costs and special costs associated with fulfilling the order. Based on the information provided, the variable costs include materials cost ($10 per unit), labor cost ($9 per unit), and manufacturing supplies ($1.50 per unit). Fixed costs such as batch-level, product-level, and facility-level costs are not relevant here, as they would be incurred regardless of whether the special order is accepted. However, if accepting the order would result in exceeding current capacity and extra batch-level costs would be incurred, then those should be considered as well.

To arrive at the relevant cost per unit, we add the variable costs: materials, labor, and supplies, which sum up to $20.50 per unit ($10 + $9 + $1.50). Since Sunny Motels offers $24 per unit and the relevant cost is less than the selling price, Dalton would be covering its variable costs and making an additional contribution towards covering fixed costs with each unit sold. Still, we also have to check batch-level costs to ensure they won't drive the costs above the offer price.

We are told Dalton made 20,800 blankets in 20 batches, leading to $2,376 per batch. If accepting the special order does not increase the number of batches (i.e., it fits within the current production schedule), then these batch-level costs remain unchanged and are not relevant to the special order consideration. Therefore, Dalton should accept the order as it contributes a surplus of $3.50 ($24 - $20.50) per unit, assuming no additional batch costs are incurred.

If the order would result in new batch-level costs, these must be added to the variable costs to determine if the order is still profitable. Assuming no additional batches, Dalton should accept the special offer from Sunny Motels for 1,080 blankets at $24 per unit.