Analysis of relevant costing w.r.t. acceptance of special.
Relevant costs, special sales order-idle versus full capacity Hull Motors, Inc. (HMI), produce small gasoline-powered motors for use in lawn mowers. The company has been growing steadily over the past five years and is operating at full capacity. HMI has recently completed the addition of new plant and equipment at a cost of $ 7,800.000. Thereby increasing ills manufacturing capacity to 100,000 motors annually. The addition (0 plant and equipment will be depreciated on a straight-line basis over 10 years.
Sales of motors were 60,000 units prior to the completion of the additional capacity. Cost records indicated that manufacturing costs had totaled $60 per motor, of which $48 per motor was considered to be variable manufacturing costs. HMI has used the volume of activity at full capacity as the basis for applying fi...ed manufacturing overhead. The normal selling price is $80 per motor, and HMl pays a 5% commission on the sale of its motors.
LawnPro.com has offered to purchase 35,000 motors at a price of $60 per unit to test the viability of distributing lawn mower replacement motors through its Web site. HMI would be expected to produce the motors, store them in its ware home. And ship Individual motors to LawnPro.com customers. As orders are placed directly through he LawnPro.com Web site, they would be forwarded instantly to HMI. There will be no commissions paid on this special sales order, and freight charges will be paid by the Customer purchasing a motor.
Required:
Identify all the relevant costs that HMI should consider in evaluating the special sales order from LawnPro.com. Why is your answer different man in requirement b?