Marie and Peter Bridge run a business manufacturing and selling sets of the popular French game, boules.
Question:
Marie and Peter Bridge run a business manufacturing and selling sets of the popular French game, boules. The boules are turned from aluminium, packaged in a neat carrying case and sold for £22 a set. The raw materials cost £8 a set and each set takes 20 minutes of turning by skilled operatives who are paid £9.00 an hour. The fixed costs of the business are £480,000 a year. This year, MPB plans to produce 80,000 sets.
Tasks:
1 Calculate:
a) the variable cost of a set of boules;
b) the absorption cost of a set of boules;
c) the break-even point;
d) the profit or loss if 80,000 sets are sold.
2 A large French champagne house has asked MPB Ltd if it will produce 5,000 boule sets for a worldwide promotion. Each set has to be engraved with the French company’s logo and the carrying case must bear its brand name. The extra work involved in this will cost £2.50 a set. It has offered to pay a total of £75,000 for the order. Should MPB accept this offer?
3 A Chinese company has proposed to MPB that it could manufacture the finished boule sets in China and supply them to MPB for £14 delivered. This price would apply to the first 50,000 sets, but after this it would reduce to £10 a set. MPB appreciates that this would change its function to trading only and it would be able to eliminate its manufacturing facilities, saving £180,000 a year.
a) Advise MPB whether or not it should accept this proposition.
b) List the points MPB should consider carefully before accepting this proposition.
Step by Step Answer:
Managerial Accounting Decision Making and Performance Management
ISBN: 978-0273764489
4th edition
Authors: Ray Proctor