Objective: To maximize output from packaging machines, the sales volume of packaged foods needs to increase....

  

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Objective: To maximize output from packaging machines, the sales volume of packaged foods needs to increase. In order to increase sales, all possible channels will be explored. This includes accepting high volume, one-time orders (or "special orders"), where the selling price will be lower than that of the regular selling price. The goal is to evaluate at what price can the special orders be accepted. Scenario: The consulting group has developed the following cost structure for packaged foods. This is based on a production capacity of 30,000 units. The unit selling price is set at $50. The fixed manufacturing expense is constant in the range of 25,000 to 50,000 units. The maximum production capacity is 30,000 units. Item Direct materials Direct labour Variable Manufacturing Overhead Fixed manufacturing overhead Variable Selling Expense Fixed Selling Expense Per Unit 16 5 5 9 8 3 Total 480,000 150,000 150,000 270,000 240,000 90,000 Due to market conditions, FFT can sell 20,000 units through regular channels. They plan to offer a quote to a large manufacturing facility to sell 5,000 units of the packaged food item, at a lower price. This would be a one-time order and can be classified as a special order. Since this would be sold directly to the client, there would be no sales commission, so variable selling expense would be reduced by 75%. However, FFT has to buy freezer boxes so that the frozen items can be transported to the manufacturing facility. The freezer boxes would cost $ 20,000 and would be used solely for this special order. After that they would have no residual value and would be discarded. Methodology: The group would calculate the offer price. The offer price will cover all variable expenses and include al 40% markup on variable expenses. # of units Item Direct materials Direct labour Variable Manufacturing Overhead Fixed manufacturing overhead Variable Selling Expense Fixed Selling Expense 30,000 Original cost card Per Unit Total 16 480,000 5 150,000 5 150,000 9 270,000 8 240,000 90,000 3 Relevant for special order Objective: To maximize output from packaging machines, the sales volume of packaged foods needs to increase. In order to increase sales, all possible channels will be explored. This includes accepting high volume, one-time orders (or "special orders"), where the selling price will be lower than that of the regular selling price. The goal is to evaluate at what price can the special orders be accepted. Scenario: The consulting group has developed the following cost structure for packaged foods. This is based on a production capacity of 30,000 units. The unit selling price is set at $50. The fixed manufacturing expense is constant in the range of 25,000 to 50,000 units. The maximum production capacity is 30,000 units. Item Direct materials Direct labour Variable Manufacturing Overhead Fixed manufacturing overhead Variable Selling Expense Fixed Selling Expense Per Unit 16 5 5 9 8 3 Total 480,000 150,000 150,000 270,000 240,000 90,000 Due to market conditions, FFT can sell 20,000 units through regular channels. They plan to offer a quote to a large manufacturing facility to sell 5,000 units of the packaged food item, at a lower price. This would be a one-time order and can be classified as a special order. Since this would be sold directly to the client, there would be no sales commission, so variable selling expense would be reduced by 75%. However, FFT has to buy freezer boxes so that the frozen items can be transported to the manufacturing facility. The freezer boxes would cost $ 20,000 and would be used solely for this special order. After that they would have no residual value and would be discarded. Methodology: The group would calculate the offer price. The offer price will cover all variable expenses and include al 40% markup on variable expenses. # of units Item Direct materials Direct labour Variable Manufacturing Overhead Fixed manufacturing overhead Variable Selling Expense Fixed Selling Expense 30,000 Original cost card Per Unit Total 16 480,000 5 150,000 5 150,000 9 270,000 8 240,000 90,000 3 Relevant for special order

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SOLUTION To determine the offer price for the special order of 5000 units we need to calculate the t... View the full answer