The Leisure Products (LP) Company manufactures lawn and patio furniture Essay Example for Free

The unfilled Products (LP) Company manufactures lawn and patio furniture EssayThese be are allocated to each unit of output found on the projected annual production of 500,000 chairs. A 10 percent markup ($ 0. 65) was added to the cost per unit in arriving at the firms selling price of $ 7. 15 (plus shipping). In May, LP received an inquiry from southeastern Department Stores concerning the feasible purchase of folding chairs for delivery in August. Southeast indicated that they would place an order for 30,000 chairs if the price did not excrete $ 5. 50 each (plus shipping).The chairs could be produced during the slow period using the firms existing equipment and workforce. No overtime stipend would have to be paid to the workforce in fulfilling the order. Adequate materials were on hand (or could be purchased at prevailing market prices) to realized the order. LP management was considering whether to accept the order. The firms chief accountant matt-up that the firm sho uld not accept the order because the price per chair was less than the total cost and contributed zipper to the firms profits.The firms chief economist argued that the firm should accept the order if the additive revenue would exceed the additive cost. The following cost accounting definitions may be helpful in making this decision Direct diligence Labor be incurred in converting the raw material into the destroyed product. Material Raw materials that enter into and become part of the final product.Plant overhead All costs other than direct labor and materials that are associated with the product, including wages and salaries paid to employees who do not work direct on the product but whose services are related to the production process (line managers, maintenance, and janitorial personnel) heat deject power supplies depreciation taxes and insurance on the assets employed in the production process. Selling and distribution costs Costs incurred in making sales (e. g. , billin g and salespeoples compensation), storing the product, and shipping the product to the node.(In this chemise the customer pays all shipping costs. ) Administrative costs Items not listed in the preceding categories, including general and executive stead costs, research, development, engineering costs, and miscellaneous items. Answer the following questions 1. Calculate the incremental, or marginal, cost per chair to leisure Products of evaluate the order from Southeast? 2. What assumptions did you make in calculating the incremental cost in Question 1? What additional information would be helpful in making these calculations?3. Based on your answers to Questions 1 and 2, should Leisure Products accept the Southeast order? 4. What additional considerations might lead Leisure Products to rule out the order? dissolver 1. Marginal cost per chair to Leisure Products = $4. 55 (Direct labor + Direct Materials) 2. While calculating incremental cost in Q1, I made following assumptions a. The cost of labor would remain same i. e. at that place leave behind no overtime wages. b. LP leave behind be able to produce 30,000 chairs to fulfill the order from Southeast with its existing capacity.c. The cost of materials will remain same. There is additional information given in the case to support my calculation in Q1. Since the customer is bearing the shipping cost, the selling and distribution costs is snub for decision making. Administrative cost and plant overhead are indirect costs and are allocated to view size of production. Since these costs do not change irrespective of production, such cost is not considered for calculation of marginal cost per chair. 3.Since selling price per chair exceeds the marginal cost per chair, LP should accept the order. This order will have positive impact on the profitability of LP. 4. Following considerations may lead Leisure Products to reject the order a. The existing capacity is not adequate and new capacity would be require d to complete the order. b. Overtime and more labor resources affecting the labor cost would be required to complete the order. c. LP will have to bear the selling and distribution costs. d. Changes in market affecting material or labor cost can affect the decision.