Rightway Printers, a book printing shop, is operating at 95% capacity. The company has been offered a
Question:
Rightway Printers, a book printing shop, is operating at 95% capacity. The company has been offered a special order for book printing at $8.50 per book; the order requires 10% of capacity. No other use for the remaining 5% idle capacity can be found. The average cost per book is $8.00, and the contribution margin per book for regular sales is $1.50.
REQUIRED
A. Which type of decision is involved here? What are the managers’ decision options?
B. What information is relevant for this decision? Does the problem give you all of the information the manager needs to make a decision? What other information is needed?
C. Using the quantitative decision rule, what premium is the manager willing to pay (per book) to relax the constrained capacity, assuming no qualitative factors are relevant?
D. Explain how capacity affects the quantitative analysis for this decision.
E. What qualitative or risk factors could affect this decision?
Contribution MarginContribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...
Step by Step Answer:
A This is a special order problem with a capacity constraint The manager chooses whether to take the ...View the full answer
Cost Management Measuring Monitoring and Motivating Performance
ISBN: 978-0470769423
2nd edition
Authors: Leslie G. Eldenburg, Susan K. Wolcott
