Homework Help is Here – Start Your Trial Now!
Business
Accounting
A third alternative for Miami Industries is to sell the machine as is for a price of $52,000. However, the potential buyer of the unmodified machine does not want it for 60 days. This buyer has offered a $7,000 down payment, with the remainder due upon delivery. The following additional information is available regarding Miami's operations. The sales commission rate on sales of standard models is 2 percent, while the rate on special orders is 3 percent. Normal credit terms for sales of standard models are 2/10, net/30. This means that a customer receives a 2 percent discount if payment is made within 10 days, and payment is due no later than 30 days after billing. Most customers take the 2 percent discount. Credit terms for a special order are negotiated with the customer. The allocation rates for manufacturing overhead and fixed selling and administrative costs are as follows: Manufacturing costs: Variable 50% of direct-labor cost Fixed . 25% of direct-labor cost Fixed selling and administrative costs 10% of the total of direct-material, direct-labor, and manufacturing-overhead costs Normal time required for rework is one month. Required: Determine the dollar contribution each of the three alternatives will add to Miami Industries before-tax profit. 1. 2. If Kaytell makes Miami Industries a counteroffer, what is the lowest price Miami should accept for the reworked machinery from Kaytell? Explain your answer. 3. Discuss the influence fixed manufacturing-overhead cost should have on the sales price quoted by Miami Industries for special orders.

A third alternative for Miami Industries is to sell the machine as is for a price of $52,000. However, the potential buyer of the unmodified machine does not want it for 60 days. This buyer has offered a $7,000 down payment, with the remainder due upon delivery. The following additional information is available regarding Miami's operations. The sales commission rate on sales of standard models is 2 percent, while the rate on special orders is 3 percent. Normal credit terms for sales of standard models are 2/10, net/30. This means that a customer receives a 2 percent discount if payment is made within 10 days, and payment is due no later than 30 days after billing. Most customers take the 2 percent discount. Credit terms for a special order are negotiated with the customer. The allocation rates for manufacturing overhead and fixed selling and administrative costs are as follows: Manufacturing costs: Variable 50% of direct-labor cost Fixed . 25% of direct-labor cost Fixed selling and administrative costs 10% of the total of direct-material, direct-labor, and manufacturing-overhead costs Normal time required for rework is one month. Required: Determine the dollar contribution each of the three alternatives will add to Miami Industries before-tax profit. 1. 2. If Kaytell makes Miami Industries a counteroffer, what is the lowest price Miami should accept for the reworked machinery from Kaytell? Explain your answer. 3. Discuss the influence fixed manufacturing-overhead cost should have on the sales price quoted by Miami Industries for special orders.

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter14: Quality And Environmental Cost Management
Section: Chapter Questions
Problem 5CE: Verde Company reported operating costs of 50,000,000 as of December 31, 20x5, with the following...
See similar textbooks
icon
Related questions
Question

Hi, Kindly assist in solving the attached question on ACC653 Advanced Managerial Accounting.

thank you!

A third alternative for Miami Industries is to sell the machine as is for a price of $52,000. However, the potential buyer of the unmodified machine does not want it for 60 days. This buyer has offered a $7,000 down payment, with the remainder due upon delivery. The following additional information is available regarding Miami's operations. The sales commission rate on sales of standard models is 2 percent, while the rate on special orders is 3 percent. Normal credit terms for sales of standard models are 2/10, net/30. This means that a customer receives a 2 percent discount if payment is made within 10 days, and payment is due no later than 30 days after billing. Most customers take the 2 percent discount. Credit terms for a special order are negotiated with the customer. The allocation rates for manufacturing overhead and fixed selling and administrative costs are as follows: Manufacturing costs: Variable 50% of direct-labor cost Fixed 25% of direct-labor cost Fixed selling and administrative costs 10% of the total of direct-material, direct-labor, and manufacturing-overhead costs Normal time required for rework is one month. Required: 1. Determine the dollar contribution each of the three alternatives will add to Miami Industries' before-tax profit. 2. If Kaytell makes Miami Industries a counteroffer, what is the lowest price Miami should accept for the reworked machinery from Kaytell? Explain your answer. 3. Discuss the influence fixed manufacturing-overhead cost should have on the sales price quoted by Miami Industries for special orders. (CMA, adapted)
Transcribed Image Text:A third alternative for Miami Industries is to sell the machine as is for a price of $52,000. However, the potential buyer of the unmodified machine does not want it for 60 days. This buyer has offered a $7,000 down payment, with the remainder due upon delivery. The following additional information is available regarding Miami's operations. The sales commission rate on sales of standard models is 2 percent, while the rate on special orders is 3 percent. Normal credit terms for sales of standard models are 2/10, net/30. This means that a customer receives a 2 percent discount if payment is made within 10 days, and payment is due no later than 30 days after billing. Most customers take the 2 percent discount. Credit terms for a special order are negotiated with the customer. The allocation rates for manufacturing overhead and fixed selling and administrative costs are as follows: Manufacturing costs: Variable 50% of direct-labor cost Fixed 25% of direct-labor cost Fixed selling and administrative costs 10% of the total of direct-material, direct-labor, and manufacturing-overhead costs Normal time required for rework is one month. Required: 1. Determine the dollar contribution each of the three alternatives will add to Miami Industries' before-tax profit. 2. If Kaytell makes Miami Industries a counteroffer, what is the lowest price Miami should accept for the reworked machinery from Kaytell? Explain your answer. 3. Discuss the influence fixed manufacturing-overhead cost should have on the sales price quoted by Miami Industries for special orders. (CMA, adapted)
Chapter 14 Decision Making: Relevant Costs and Benefits Miami Industries received an order for a piece of special machinery from Jay Company. Just as Miami completed the machine, Jay Company declared bankruptcy, defaulted on the order, and forfeited the 10 percent deposit paid on the selling price of $72,500. Miami's manufacturing manager identified the costs already incurred in the production of the spe- cial machinery for Jay Company as follows: to Direct material $16,600 Direct labor 21,400 Manufacturing overhead applied: Variable $10,700 Fixed 5,350 16,050 Fixed selling and administrative costs 5,405 Total $59,455 Another company, Kaytell Corporation, will buy the special machinery if it is reworked to Kaytell's specifications. Miami Industries offered to sell the reworked machinery to Kaytell as a special order for $68,400. Kaytell agreed to pay the price when it takes delivery in two months. The additional identifi- able costs to rework the machinery to Kaytell’s specifications are as follows: Direct material $ 6,200 Direct labor 4,200 Total $10,400 A second alternative available to Miami's management is to convert the special machinery to the stan- dard model, which sells for $62,500. The additional identifiable costs for this conversion are as follows: Direct material $2,850 Direct labor 3,300 Total $6,150
Transcribed Image Text:Chapter 14 Decision Making: Relevant Costs and Benefits Miami Industries received an order for a piece of special machinery from Jay Company. Just as Miami completed the machine, Jay Company declared bankruptcy, defaulted on the order, and forfeited the 10 percent deposit paid on the selling price of $72,500. Miami's manufacturing manager identified the costs already incurred in the production of the spe- cial machinery for Jay Company as follows: to Direct material $16,600 Direct labor 21,400 Manufacturing overhead applied: Variable $10,700 Fixed 5,350 16,050 Fixed selling and administrative costs 5,405 Total $59,455 Another company, Kaytell Corporation, will buy the special machinery if it is reworked to Kaytell's specifications. Miami Industries offered to sell the reworked machinery to Kaytell as a special order for $68,400. Kaytell agreed to pay the price when it takes delivery in two months. The additional identifi- able costs to rework the machinery to Kaytell’s specifications are as follows: Direct material $ 6,200 Direct labor 4,200 Total $10,400 A second alternative available to Miami's management is to convert the special machinery to the stan- dard model, which sells for $62,500. The additional identifiable costs for this conversion are as follows: Direct material $2,850 Direct labor 3,300 Total $6,150
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 4 steps with 2 images

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Accounting systems
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Cornerstones of Cost Management (Cornerstones Ser…
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Managerial Accounting
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Intermediate Accounting: Reporting And Analysis
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:
9781337788281
Author:
James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:
Cengage Learning
SEE MORE TEXTBOOKS