Question

Wayne Windows, Inc. is a leading producer of vinyl replacement windows. The company’s growth strategy focuses on developing domestic markets in large metropolitan areas. The company operates a single manufacturing plant in Kansas City with an annual capacity of 500,000 windows. Current production is budgeted at 400,000 windows per year, a quantity that has been constant over the past three years. Based on the budget, the accounting department has calculated the following unit costs for the windows:
Direct materials........ $37
Direct labor ......... 16
Manufacturing overhead .... 23
Selling and administrative.... 14
Total unit cost ....... $90

The company's budget includes $5,000,000 in fixed overhead and $3,100,000 in fixed selling and administrative expenses. The windows sell for $140 each. A 2% distributor's commission is included in the selling and administrative expenses.

Required
a. Nordic Vistas, Norway's second largest homebuilder, has approached Wayne with an offer to buy 75,000 windows during the coming year. Given the size of the order, Nordic has requested a 40% volume discount on Wayne's normal selling price. Should Wayne grant Nordic's request?
b. List the qualitative issues Wayne should consider in deciding whether to grant Nordic's request for a discount. For each issue you list, identify whether or not it supports a decision to grant Nordic's request.
c. Return to the original data. Ryster Remodeling has just signed a contract with the state government to replace the windows in low-income housing units throughout the state.
Ryster needs 125,000 windows to complete the job and has offered to buy them from Wayne at a price of $95 per window. Ryster will pick up the windows at Wayne's plant, so Wayne will not incur the $2 per window shipping charge. In addition, Wayne will not need to pay a distributor's commission, since the windows will not be sold through a distributor. Should Wayne accept Ryster's offer?
d. If Wayne decides to accept Ryster's offer, it will need to find an additional 25,000 windows to meet both the special order and normal sales. Clear-Vue Windows has offered to provide them to Wayne at a price of $105 per window. Clear-Vue will deliver the windows to Wayne, and Wayne would then distribute them to its customers. Should Wayne outsource the production of the extra windows to Clear-Vue?



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  • CreatedFebruary 21, 2014
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