Problem 1 - Effect of order quantity on special order decision
Ellis Quilting Company makes blankets that it markets through a variety of department stores. It makes the blankets in batches of 1,000 units. Ellis made 20,000 blankets during the prior accounting period. The cost of producing the blankets is summarized here.
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Materials cost ($25 per unit x 20,000)
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$500,000
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Labor cost ($22 per unit x 20,000)
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440,000
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Manufacturing supplies ($2 x 20,000)
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40,000
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Batch-level costs (20 batches at $4,000 per batch)
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80,000
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Product-level costs
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160,000
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Facility-level costs
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290,000
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Total costs
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1,510,000
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Cost per unit = $1,510,000 / 20,000 = $75.50
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Required
a. Kent Motels has offered to buy a batch of 500 blankets for $56 each. Ellis's normal selling price $90 per unit. Based on the preceding quantitative data, should Ellis accept the special order? Support your answer with appropriate computations.
b. Would your answer to Requirement a change if Kent offered to buy a batch of 1,000 blankets for $56 per unit? Support your answer with appropriate computations.
c. Describe the qualitative factors that Ellis Quilting Company should consider before accepting a special order to sell blankets to Kent Motels.
Problem 2 - Preparing a sales budget and schedule of cash receipts
McCarty Pointers Inc. expects to begin operations on January 1, 2012; it will operate as a specialty sales company that sells laser pointers over the Internet. McCarty expects sales in January 2012 to total $200,000 and to increase 10 percent per month in February and March. All sales are on account. McCarty expects to collect 70 percent of accounts receivable in the month of sale, 20 percent in the month following the sale, and 10 percent in the second month following the sale.
Required
a. Prepare a sales budget for the first quarter of 2012.
b. Determine the amount of sales revenue McCarty will report on the first 2012 quarterly proforma income statement.
c. Prepare a cash receipts schedule for the first quarter of 2012.
d. Determine the amount of accounts receivable as of March 31, 2012.