| Course | AC420 Cost Accounting |
|---|---|
| Unit | Unit 9 |
| Paper type | Relevant cost decision memo |
| Length | About 760 words, 5 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | BS in Accounting |
| Updated | October 2026 |
Free sample paper for AC420 Unit 9
Accept in March, Decline in November: A Unit 9 Relevant Cost Memo on a Retailer's 6,000-Skillet Special Order
[Student Name]
Purdue University Global
AC420: Cost Accounting
Unit 9 Relevant Cost Decision Memo
[Instructor Name]
[Date]
Bellhaven Iron Works, the retailer and every figure are composite; the textbooks and study cited are real.
Header
To: Sales director From: Cost analyst Date: January 12 Subject: Special order, 6,000 private-label skillets at $10.10
Recommendation
Accept the order for delivery in the first quarter, when the molding line has idle capacity; it adds $21,660 to profit. Do not accept the same order for fourth-quarter delivery, when every skillet poured for the retailer would displace a regular sale and the order would lose $36,360. Accept on the condition that the skillets ship only under the retailer's own brand.
Exhibit A: Which Costs Are Relevant
The test applied to each line is whether the amount would differ if the order were accepted.
Relevant:
1. Iron, labor and variable overhead: $5.84 a skillet. Each one poured uses them.
2. Private-label box: $0.35 a skillet, bought only for this order.
3. Packaging die for the retailer's box: $1,800, a one-time cost.
Not relevant:
1. Fixed manufacturing overhead absorbed at $4.06 a skillet. Plant supervision, building costs and insurance will be paid whether the retailer's skillets run or not.
2. Depreciation on the molding line, which is a past cost spread over time.
3. The existing 10-inch skillet pattern, already paid for. Its wear over 6,000 pours is immaterial.
4. The 6 percent sales commission, because this retailer buys direct and no commission is owed.
Fixed overhead is the line that makes the order look unprofitable, and it is also the one line that will not change by a dollar whether Bellhaven says yes or no, which is why it is left out.
Exhibit B: The Order in the First Quarter
1. Revenue: 6,000 x $10.10 = $60,600.
2. Incremental cost: 6,000 x ($5.84 + $0.35) = $37,140, plus the $1,800 die, $38,940.
3. Added profit: $21,660.
The full-cost view the sales director has already seen: 6,000 x ($9.90 + $0.35) = $61,500, plus the die, $63,300, against $60,600 of revenue, a loss of $2,700. The difference between the two views is exactly the $24,360 of fixed overhead the full-cost figure assigns to an order that would not cause it.
The minimum acceptable price with idle capacity is the incremental cost per skillet, $38,940 / 6,000 = $6.49.
Exhibit C: The Same Order in the Fourth Quarter
In the fourth quarter the line runs at capacity, so each private-label skillet takes the place of a regular one. A regular skillet sells for $16.90; less variable cost of $5.84, the 6 percent commission of $1.01 and its retail box of $0.38, it contributes $9.67.
1. Incremental cost as above: $38,940.
2. Contribution given up: 6,000 x $9.67 = $58,020.
3. Total cost of accepting: $96,960, against revenue of $60,600: a loss of $36,360.
The minimum price at full capacity rises to $6.49 plus $9.67, $16.16 a skillet, which the retailer will not pay.
Qualitative Factors
The main risk is channel conflict: regular retailers may see the same skillet at a lower price elsewhere. The condition that the skillets carry only the retailer's brand, in its box, limits that risk. The order also keeps the first-quarter crew working at a time when Bellhaven would otherwise cut hours. With a gain of $21,660, the qualitative factors would have to be serious to reverse the recommendation, and they are not.
What Would Change the Answer
Three facts would alter this recommendation. If the retailer asked for delivery split across March and October, the October half would carry the displaced contribution and should be priced near $16.16. If first-quarter volume rose enough to fill the line, the idle capacity that makes the order profitable would disappear. And if the retailer signaled that this order is a trial for a standing annual contract, the decision would become a long-run pricing question, in which fixed costs must eventually be covered and the $10.10 price would be too low. Sales should confirm all three before the order is signed.
Why the Full-Cost Figure Persuades
Managers often keep weighing costs already incurred or fixed, a pattern Arkes and Blumer (1985) documented as the sunk cost effect. The textbook rule is to ignore costs that do not differ between alternatives (Datar & Rajan, 2021), and to price special orders on incremental cost only while capacity is idle (Garrison et al., 2021).
References
Arkes, H. R., & Blumer, C. (1985). The psychology of sunk cost. Organizational Behavior and Human Decision Processes, 35(1), 124-140. https://doi.org/10.1016/0749-5978(85)90049-4
Datar, S. M., & Rajan, M. V. (2021). Horngren's cost accounting: A managerial emphasis (17th ed.). Pearson.
Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2021). Managerial accounting (17th ed.). McGraw Hill.
The Purdue Global AC420 Unit 9 instructions
Unit 9 of AC420 asks for a memo deciding a special order on relevant costs. Address it to the manager who will decide and put the recommendation, with any condition, in the opening paragraph. In an exhibit, test every cost in the problem by asking whether it would differ if the order were accepted, and sort the costs into relevant and not relevant with a reason for each. Show the incremental analysis: revenue, incremental costs and the change in profit. Include the full-cost view the reader may already have seen and explain the difference. Consider capacity: if the order would displace regular sales, add the contribution given up. State the minimum acceptable price under each condition. Discuss qualitative factors briefly and say whether they change the answer, and note what facts would. Cite the textbook and research on sunk costs in APA 7.
Inside the AC420 Unit 9 example
The sample's header addresses the sales director, and the recommendation accepts the order for the first quarter, declines it for the fourth and adds a branding condition. Exhibit A sorts costs: variable cost, the private-label box and the die are relevant; absorbed fixed overhead, depreciation, the existing pattern and the commission are not. The highlighted sentence explains why fixed overhead is left out. Exhibit B shows $60,600 of revenue against $38,940 of incremental cost and reconciles the $2,700 full-cost loss through $24,360 of fixed overhead. Exhibit C reruns the order at capacity with $9.67 of displaced contribution per skillet. Sections on qualitative factors and on what would change the answer follow, and a close cites Arkes and Blumer on the sunk cost effect, Datar and Rajan, and Garrison and colleagues.
AC420 Unit 9 rubric: what earns full points
AC420 relevant cost memos are graded on correct classification, correct arithmetic and a clear recommendation. Every cost in the problem should be classified with a reason, because graders check the lines that are easy to get wrong: absorbed fixed overhead, sunk costs and costs that apply only to regular sales. The incremental analysis must tie to the classification. Explaining the gap between the full-cost and incremental views shows real understanding. Capacity must be addressed; where the order would displace sales, the lost contribution belongs in the analysis and changes the minimum price. A recommendation that leads the memo and carries a condition is stronger than a list of considerations. Qualitative factors should be weighed against the size of the gain. Memo format and APA 7 references to the textbook and sunk cost research count toward the Purdue Global grade.
AC420 Unit 9 help from the desk
Many Unit 9 memos reject the order because it falls below full cost, counting fixed overhead that will be paid anyway. Others accept it without asking about capacity, missing the displaced sales. Commissions or packaging that apply only to regular sales are charged to the special order. The one-time die is left out or spread as if it recurred. The recommendation sits at the end after a long list of factors and never commits. Qualitative factors are listed without being weighed. If your problem involves a make-or-buy choice, dropping a product line or a service contract, our writers can build the classification, the exhibits and the recommendation from your figures.
Get an AC420 Unit 9 example written to your instructions
Special-order problems turn on details, so pass along the Unit 9 scenario with its offered price, the cost sheet, any capacity statement and the rubric. Each cost line gets a relevant or irrelevant verdict and a reason, the order is priced under the capacity conditions the facts allow, and the memo reaches a decision. 24-48h; first custom sample free. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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AC420 Unit 9 questions, answered
What is the minimum price the plant should accept?
With idle capacity, the incremental cost per unit: here 38,940 dollars over 6,000 skillets, or 6.49 each, including the die spread across the order. At full capacity, that figure plus the contribution given up on each displaced regular sale, which lifts the floor to 16.16. The sample states both, because the answer depends on the quarter.
Is the existing skillet pattern ever relevant?
Not its original cost, which was spent whether or not this order is accepted. What could be relevant is wear: if the order would shorten the pattern's life and bring forward a replacement, the cost of that earlier replacement belongs in the analysis. The sample notes the possibility and treats it as immaterial for 6,000 pours.
How much space should qualitative factors get?
Enough to change the recommendation if they should. With a gain of 21,660 dollars in the first quarter, channel conflict would have to be serious to reverse it, so the sample gives the factors a short paragraph and a condition, deliveries packed under the retailer's brand only. A decision memo that ends on a balanced list without deciding tends to lose marks.
Where can I find a free AC420 Unit 9 sample paper?
This page holds a complete AC420 Unit 9 relevant cost decision memo on a composite cookware maker's 6,000-skillet special order, with cost classification, idle and full capacity analyses and APA 7 references.
Why is the commission left out in AC420 Unit 9?
This retailer buys direct, so no commission is owed on the order. The 6 percent commission is relevant only to regular sales, which is why it appears in the contribution given up at full capacity.