Accounting Information System

Royal motors Company produces and sells high performance SUVs at a regular price of $50,000.Royals costs per SUV are follows:Cost per unitDirect material $15,000Direct labor $5,000Variable overhead $10,000Fixed overhead $17,500Total $47,500An unnamed government agency wants to buy 10 black SUVs at a discounted price of $35,000. It’s a one-time deal (i.e., a short-term decision), and Royal has enough spare capacity to fulfill this special order.

Question 1: Should Royal take this special order?Question 2: If you reduce the price to $28,000, they will buy 20 SUVs instead of 10. Should you reduce the price to $28,000?

2. Johns computers produces its laptops in-house . The production costs per laptop are as followsCost per laptop Direct material $300Direct labor $20Variable overhead $30Fixed overhead $100Total cost per unit $450An outside supplier has offered to supply identical laptops at a price of $360 per laptop. Bell requires 1 million laptops per month.

Question 1: If Bell outsources the production of laptops in the short term, how will it affect its monthly costs and profits? Should it outsource? (assume that Bell has enough capacity to produce the laptops in-house, and does not have any alternative use for that capacity)

Question 2: Should Bell outsource (in the short term) if the outside suppliers price drops to $340?3.Choosing the product mix You produce 3 types of camping tents, Basic, Premium and Supreme:Basic Premium Price $100 $500Unit variable cost $30 $200Unit contribution margin $70 $300Machine hours per unit 1 hr 2 hrs You have limited capacity of 500 machine hours.After a recent wave of foreclosures, millions of people are losing their houses and buying tents instead. Therefore, demand for all 3 products is booming, and you do not have enough capacity to fully meet the demand for any of the products.Question: Which product should you make?

Solution:

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