Greentree Incorporated Manufactures Rustic Furniture

question 61

Essay

Greentree Incorporated manufactures rustic furniture. The cost accounting system estimates manufacturing costs to be $120 per table, consisting of 60% variable costs and 40% fixed costs. The company has surplus capacity available. It is Greentree's policy to add a 30% markup to full costs.
a.Greentree Incorporated is invited to bid on an order to supply 100 rustic tables. What is the lowest price Greentree should bid on this one-time-only special order?
b.A large hotel chain is currently expanding and has decided to decorate all new hotels using the rustic style. Greentree Incorporated is invited to submit a bid to the hotel chain. What is the lowest price per unit Greentree should bid on this long-term order?

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Definitions:

Offset Conditions

Conditions that allow entities to negate or counterbalance one position with another, commonly used in accounting and finance to manage risk or net-off liabilities against assets.

Different Financial Instruments

Various types of investment assets, including stocks, bonds, derivatives, and mutual funds, that provide a way for individuals and businesses to invest, finance operations, or manage risk.

Financial Instrument

A contract that leads to the creation of a financial asset for one party and results in a financial liability or equity instrument for another party.

Market Risk

The risk that the value of a financial instrument will fluctuate because of changes in foreign exchange rates, market interest rates or some other market prices.