1) Compare and contrast the advantages of the contribution approach versus absorption-costing approaches in cost-plus pricing.

2)Surly Company makes small boats. The company produces and sells 5,500 boats per year at a selling price of $160 per boat. Surly Company has excess capacity and is trying to get special orders. A new retailer wants to purchase 1,000 boats for $125 per boat. Surly Company is going to decline the special order because it costs $130 to make a single boat as seen below:

Direct materials $50 per unit

Direct manufacturing labor $55 per unit

Variable manufacturing overhead $10 per unit

Fixed manufacturing overhead $15 per unit

Total $130 per unit


A) Should Surly Company reject the special order from the new retailer? Why?

B) How much will Surly’s net income increase with the special offer?

3)Sealy Company has a joint process, which produces three products called A, B and C. Each product may be sold at split-off or processed further and then sold. Joint processing costs for a year are $20,000. Other relevant data are:

Sales Value Separable Processing Sales Value

Product at Split-Off Costs After Split-Off at Completion

A $94,000 $28,000 $115,000

B 60,000 10,000 82,000

C 66,000 14,000 79,000


A) Which products should be processed further? Why?

B) If the Sealy Company maximizes profits, what is the operating income?