Scherer Corporation Is Preparing a Bid for a Special Order

question 44

Multiple Choice

Scherer Corporation is preparing a bid for a special order that would require 720 liters of material U48N.The company already has 560 liters of this raw material in stock that originally cost $6.30 per liter.Material U48N is used in the company's main product and is replenished on a periodic basis.The resale value of the existing stock of the material is $5.80 per liter.New stocks of the material can be readily purchased for $6.65 per liter.What is the relevant cost of the 720 liters of the raw material when deciding how much to bid on the special order? (CIMA adapted)

• A)$4,592.
• B)$4,788.
• C)$4,456.
• D)$4,176.

Comprehend the effect of denominator level of activity on predetermined overhead rates.

Analyze the impact of variable and fixed manufacturing overhead variances.

Recognize how standard costing systems apply fixed and variable manufacturing overhead costs to products.

Evaluate the financial implications of failing to meet target activity levels.

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Definitions:

Management Expertise

the set of skills, knowledge, and experience that is required for effectively directing and controlling an organization.

Carrying Value

The value of an asset as shown in the business's account, which may differ from its fair market value, considering factors such as depreciation.

Straight-Line Method

An accounting method for calculating depreciation by evenly spreading the cost of an asset over its useful life.

Goodwill Impairment

A write-down of goodwill on the balance sheet when its carrying value exceeds the fair value, indicating that the asset is not as valuable as previously thought.