A cycle tyre manufacturing company has been approached by a large shopkeeper to buy 10,000 tyres at Rs 32 each. Delivery must be made within 30 days. The production capacity of the company is 64,000 units per month and there is inventory of 2,000 tyres on hand. Expected sales at regular prices for the coming month are 60,000 tyres. It is estimated by the sales manager that about 50 per cent of sales lost during the month would be made up in later months. Price and cost data per unit are as follows:

Selling Price Tk. 48.00

Variable Cost

Production Tk. 24.00

Selling Tk. 06.00 Tk. 30.00

Contribution Tk. 18.00

The variable selling costs on the special order would be Tk. 1.00 per unit.

(i) Determine whether the offer should be accepted by the firm or not.

(ii) Determine the lowest price that the company could charge on the special order and not reduce it income.

(iii) Suppose now that the shopkeeper offers to buy 8,000 tyres per month at Tk. 32.00 per tyre. The offer would be for an entire year. Expected sales are 60,000 tyres per month without accepting the special order. Assuming further that there is no beginning inventory and that sales lost during the year would not be made up in the following year, determine whether the offer should be accepted, and determine the lowest price that the company could accept.

Answer rating: 100% (QA)

Answer Explanation I In this question it needs to be determined whet... View the full answer