Question: Leisure Resorts Ltd has approached EZ Printers Inc with a

Leisure Resorts, Ltd., has approached EZ Printers, Inc., with a special order to produce 300,000 two-page brochures. Most of EZ’s work consists of recurring short-run orders. Leisure Resorts is offering a one-time order, and EZ has the capacity to handle the order over a two-month period.
Leisure Resorts’ management has stated that the company would be unwilling to pay more than $48 per 1,000 brochures. EZ’s controller assembled the following cost data for this decision analysis:
Direct materials (paper) .......... $26.80 per 1,000 brochures
Direct labor costs ........... $6.80 per 1,000 brochures
Direct materials (ink) ........... $4.40 per 1,000 brochures
Variable production overhead ...... $6.20 per 1,000 brochures
Machine maintenance (fixed cost) ..... $1.00 per direct labor dollar
Other fixed production overhead ...... $2.40 per direct labor dollar
Variable packing costs .......... $4.30 per 1,000 brochures
General and administrative expenses (fixed
costs) to be allocated .......... $5.25 per direct labor dollar

1. Prepare an analysis for EZ’s management to use in deciding whether to accept or reject Leisure Resorts’ offer. What decision should be made?
2. What is the lowest possible price EZ can charge per thousand and still make a $6,000 profit on the order?

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  • CreatedMarch 26, 2014
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