Fuller Company makes frames. A customer wants to place a special order for 600 frames in green with the company logo painted on the frame, to be priced at $40 each. Normally, Fuller would charge $90 per frame for this type of order. Fuller figures that wood and glass will cost $16 per frame, variable overhead (machining, electricity) is $4 per frame, direct labor is $12 per frame, and one setup will be required at $1,000 per setup. The set-up charge costs are 100% labor. Currently, the workers needed to set up for and make the frames are working at Fuller. Their wages will be paid whether or not the special order is accepted. Fuller's policy is to avoid layoffs to the extent possible.
-Which costs of the special order relate to flexible resources?
A) wood and glass
B) wood, glass, and variable overhead
C) depreciation on machinery
D) wood, glass, and direct labor
E) wood, glass, direct labor, and setup labor

Question

Quizplus · Accepted Answer

Flexible resources are those whose costs vary with the level of production or service. In this case, wood and glass ($16 per frame) and variable overhead ($4 per frame) are costs that will change directly with the production of the additional frames. Direct labor and setup labor costs are not considered flexible in this context because the workers' wages will be paid regardless of whether the special order is accepted, indicating these costs are fixed in the short term. Depreciation on machinery is also a fixed cost and does not vary with production levels.

Fuller Company Makes Frames