Clean, Inc. cleans and waxes floors for commercial customers. The company is presently operating at less than capacity with equipment and employees idle at times. The company recently received an order from a potential customer outside the company's normal geographic service region for a price of $11,000. The size of the proposed job is 24,000 square feet. The company's normal service costs are as follows: Unit-level materials $ 0.20 per square foot Unit-level labor $ 0.27 per square foot Unit-level variable overhead $ 0.10 per square foot Facility-level overhead Allocated at $0.12 per square foot If the company accepts the special offer:

a. The company will earn $13,550 on the job.

b. The company will lose $8,050 on the job.

c. The company will lose $22,000 on the job.

d. The company will lose $36,850 on the job.

Question

Business

Gisselle Hill

14 March, 14:29

Clean, Inc. cleans and waxes floors for commercial customers. The company is presently operating at less than capacity with equipment and employees idle at times. The company recently received an order from a potential customer outside the company's normal geographic service region for a price of $11,000. The size of the proposed job is 24,000 square feet. The company's normal service costs are as follows: Unit-level materials $ 0.20 per square foot Unit-level labor $ 0.27 per square foot Unit-level variable overhead $ 0.10 per square foot Facility-level overhead Allocated at $0.12 per square foot If the company accepts the special offer:

a. The company will earn $13,550 on the job.

b. The company will lose $8,050 on the job.

c. The company will lose $22,000 on the job.

d. The company will lose $36,850 on the job.

+2

Answers (1)

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Tia · Answer 1

No option is even close, since total incremental costs are $13,680 and total incremental revenue is $11,000, which results in a net loss of $2,680.

Explanation:

unit level materials per sq ft = $0.20 x 24,000 = $4,800

unit level labor per sq ft = $0.27 x 24,000 = $6,480

unit variable overhead per sq ft = $0.10 x 24,000 = $2,400

total costs = $13,680

Facility level overhead (fixed) should not be allocated to this job since it is considered an special job/order, and the company currently has idle capacity.

Anyways the company would lose money with this contract = $11,000 - $13,680 = - $2,680