Cognitroncis Inc. manufactures a specialty voice announcement machine used by telephone companies. The CX 4000 has a
Question:
Cognitroncis Inc. manufactures a specialty voice announcement machine used by telephone companies. The CX 4000 has a normal selling price of $10,100 and sales of the machine have been steady for the last year. Today, sales rep Jim Bronson received a call from one of his best customers asking about a bulk purchase of 200 CX-4000 units. The customer specifically requested a special price of $8,000 with special instructions on how and where each is to be shipped. Cognitroncis management will meet soon to determine if this special order should be accepted. The CEO of the company stated that he will only accept the order if Cognitronics can show at least $1,000 profit per machine. Some facts that may be considered include the following cost structure for normal production of the CX 4000 unit:
Direct Material : $2,650
Direct Labor: 10 hours per skilled labor, 3 hours of programing and half an hour for packaging.
Skilled labor wages are $33 per hour, programing wages are $32 per hour and packaging costs are $12.5 per hour.
Factory Overhead is applied based on skilled labor hours at a rate of 75%. 70% of the factory overhead is fixed costs.
Special note: The units requested will require a newer hard drive to hold the prerecorded voice announcements. The newer hard drives have an added cost of $350 each and only apply to this order.
Required:
Determine the relevant costs associated with filling the special order. Based on your computations, what would be the effect on Cognitronics’ Net Income?
