$4-33.$ Special Orders

Carlsbad Enterprises has a capacity to produce $400,000$ computer cases per year. The com$-$

pany is currently producing and selling $320,000$ cases per year at a selling price of $$80$ per case.

The cost of producing and selling one case follows:

The company has received a special order for $20,000$ cases at a price of $$50$ per case. Because it

does not have to pay a sales commission on the special order, the variable selling and adminis$-$

trative costs would be only $$10$ per case. The special order would have no effect on total fixed

costs. The company has rejected the offer based on the following computations:

Required

a$.$ What is the impact on profit for the year if Carlsbad accepts the special order? Show

computations.

b$.$ Do you agree with the decision to reject the special order? Explain.$(1.04-5)4-47.$ Theory of Constraints

Playful Pens. Inc., makes a single model of a pen. The cartridge for the pen $($which contains

the ink$)$ is manufactured on one machine. The cartridge holder $($which you hold when you

hold the pen$)$ is manufactured on another machine. Monthly capacities and production levels

are as follows:

The company could sell $1,000,000$ pens per month. The units $($cartridge inside of holder$)$

sell for $$10$ each and have a variable cost of $$4$ each. Fixed costs are $$4,000,000$ per month.

Required

a$.$ Is there a bottleneck at Playful Pens? If so$,$ where is it$?$

b$.$ Playful Pens's production supervisors state they could increase machine $2\text{'}$s capacity by

$200,000$ per month by producing holders on the weekend. Producing on the weekend

would not affect the sales price. Variable cost per unit would increase by $$1$ for those

produced on the weekend because of the premium paid to labor. Fixed costs would also

increase by $$800,000$ per month. Should Playful Pens produce holders on the weekend?

c$.$ Independent of the situation in requirement $($b$),$ Playful Pens could expand the capability

of machine $2$ by adding additional workers to perform ongoing maintenance. This would

increase its capacity by $100,000$ holders per month. This would not affect sales price

or fixed costs, but would increase variable cost to $$4\mathrm{.}50$ per unit for all units produced.

Should Playful Pens expand machine $2\text{'}$s capability by adding these additional workers?