Albrecht Ltd. manufactures tackle boxes, and the company estimates that during the first quarter of this...

 

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Albrecht Ltd. manufactures tackle boxes, and the company estimates that during the first quarter of this year, it will be operating at 80% of normal capacity. The selling price and cost information for the tackle box is as follows: Selling price $22.50 Direct materials $ 6.25 Direct labour (0.5 hours x $15.00) Overhead (0.25 machine hours x $10) 7.50 2.50 $16.25 Albrecht is considering two special order requests to fill the remaining 20% of capacity. The special order requests received are as follows: • Alan Co. has asked for a tackle box that is similar to Albrecht's boxes but which Alan would like to market as its own. Alan is willing to pay $15.00 each for 20,000 boxes. The special order for Alan would have the same costs except for direct materials, which would be only $5.60 per box. • Shala Corp. has asked for 7,500 tackle boxes at $18.00 per box. This box will be different than the regular case Albrecht produces and would have the following cost data: Direct materials $ 8.15 Direct labour (0.5 hours x $15.00) Overhead (0.50 machine hours x $10) 7.50 5.00 $20.65 The Shala order will also result in $3,750 of setup costs and $6,250 for additional equipment, which will be used only for this order and then discarded. Albrecht's manufacturing machine hours are limited to 7,500 per month. The budgeted fixed overhead for this year is $540,000. Overhead is applied to production based on machine hours at $10 per hour. Albrecht has the entire first quarter to work on the special orders, if accepted. Each special order is isolated and not expected to result in future sales from either Shala or Alan. Required: Should either or both special orders be accepted? What are the qualitative aspects of this decision? Albrecht Ltd. manufactures tackle boxes, and the company estimates that during the first quarter of this year, it will be operating at 80% of normal capacity. The selling price and cost information for the tackle box is as follows: Selling price $22.50 Direct materials $ 6.25 Direct labour (0.5 hours x $15.00) Overhead (0.25 machine hours x $10) 7.50 2.50 $16.25 Albrecht is considering two special order requests to fill the remaining 20% of capacity. The special order requests received are as follows: • Alan Co. has asked for a tackle box that is similar to Albrecht's boxes but which Alan would like to market as its own. Alan is willing to pay $15.00 each for 20,000 boxes. The special order for Alan would have the same costs except for direct materials, which would be only $5.60 per box. • Shala Corp. has asked for 7,500 tackle boxes at $18.00 per box. This box will be different than the regular case Albrecht produces and would have the following cost data: Direct materials $ 8.15 Direct labour (0.5 hours x $15.00) Overhead (0.50 machine hours x $10) 7.50 5.00 $20.65 The Shala order will also result in $3,750 of setup costs and $6,250 for additional equipment, which will be used only for this order and then discarded. Albrecht's manufacturing machine hours are limited to 7,500 per month. The budgeted fixed overhead for this year is $540,000. Overhead is applied to production based on machine hours at $10 per hour. Albrecht has the entire first quarter to work on the special orders, if accepted. Each special order is isolated and not expected to result in future sales from either Shala or Alan. Required: Should either or both special orders be accepted? What are the qualitative aspects of this decision?

Answer rating: 100% (QA)

Variable cost varies with number of units produced or sold thus it is a relevant cost in decision ma... View the full answer