Question

Clean, Inc. cleans and waxes floors for commercial customers. The company is presently operating at less than capacity with equipment and employees idle at times. The company recently received an order from a potential customer outside the company's normal geographic service region for a price of $11,000. The size of the proposed job is 24,000 square feet. The company's normal service costs are as follows: Unit-level materials $ 0.20 per square foot Unit-level labor $ 0.27 per square foot Unit-level variable overhead $ 0.10 per square foot Facility-level overhead Allocated at $0.12 per square foot If the company accepts the special offer:

a. The company will earn $13,550 on the job.

b. The company will lose $8,050 on the job.

c. The company will lose $22,000 on the job.

d. The company will lose $36,850 on the job.

Answer 1

No option is even close, since total incremental costs are $13,680 and total incremental revenue is $11,000, which results in a net loss of $2,680.

Step-by-step explanation:

unit level materials per sq ft = $0.20 x 24,000 = $4,800

unit level labor per sq ft = $0.27 x 24,000 = $6,480

unit variable overhead per sq ft = $0.10 x 24,000 = $2,400

total costs = $13,680

Facility level overhead (fixed) should not be allocated to this job since it is considered an special job/order, and the company currently has idle capacity.

Anyways the company would lose money with this contract = $11,000 - $13,680 = -$2,680