Snow Company manufactures several models of snow blowers. It markets the machines through its own franchise stores.
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Question:
Snow Company manufactures several models of snow blowers. It markets the machines through its own
franchise stores. Snow has been approached by a large discount store chain RWV Inc. with a onetime
offer to buy model X blowers. Snow has never worked with RWV Inc. before. RWV is offering
Snow a unit price of $ At that price, RWV wants Snow to paint the machines a special color and write
RWVs logo on them processes that Snows management expects would cost $ per machine.
Currently, Snow works with a gross profit margin of and has a firm policy of a minimum of
gross profit margin. Here is current cost and production information about the model X snow blowers:
Finished goods inventory on hand in units units
Expected sales over the next months in units units
Production for the next months in units units
Variable cost per unit.............................................. $
Fixed cost per unit................................................... $
Required:
If you were the manager of Snow Company, in order to accept this special order, two of the most
important items to consider would be available excess production capacity and a sufficient margin to be
generated from the order.
a Does Snow Co have available excess production capacity to fulfill this special order? Calculate.
b Calculate the regular selling price.
c Will Snow generate sufficient margin to justify accepting this special order? Show your calculations.
Should Snow accept the special order?
d Why is it important that the Company have available excess production capacity to accept the order?
Related Book For
Cost Management Measuring Monitoring And Motivating Performance
ISBN: 9781118168875
2nd Canadian Edition
Authors: Leslie G. Eldenburg, Susan Wolcott, Liang Hsuan Chen, Gail Cook
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