Read the Case Exercise Cost Analysis (pp. 327-328 of the Textbook)
- Answer the following questions:
1. Calculate the incremental, or marginal, cost per chair to Leisure Products of accepting 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 Pro
To answer the questions, we need to review the Case Exercise Cost Analysis on pages 327-328 of the textbook. Here is a step-by-step guide to find the answers:
1. Calculate the incremental cost per chair to Leisure Products of accepting the order from Southeast:
- Look for the section in the case analysis that provides the relevant cost information. This may include direct materials, direct labor, variable overhead, and any other relevant expenses.
- Identify the costs that are specific to the Southeast order. These costs are the incremental costs.
- Sum up the incremental costs and divide by the number of chairs in the Southeast order to get the incremental cost per chair to Leisure Products.
2. Identify the assumptions made in calculating the incremental cost in Question 1 and identify additional information needed:
- Review the calculations made in Question 1 and identify any assumptions made about cost allocation or other factors.
- Consider what additional information would be helpful in making these calculations. This could include knowing the specific direct costs, overhead rates, or any other relevant cost details to have a more accurate calculation.
3. Determine whether Leisure Products should accept the Southeast order based on the answers to Questions 1 and 2:
- Evaluate the incremental cost per chair calculated in Question 1 in relation to the selling price for the order.
- Consider other factors such as capacity constraints, long-term implications, or strategic considerations that may affect the decision.
4. Identify additional considerations that might lead Leisure Products to make a decision:
- Think about other factors that may impact the decision to accept or reject the order, such as the customer's reputation, potential for future business, production capacity, and any other relevant factors mentioned in the case analysis.
By following these steps and reviewing the Case Exercise Cost Analysis, you should be able to answer the questions and understand the rationale behind each answer.