CUSTOM ORDER: Please advise if it should be accepted. MBL has been approached by an important customer
Question:
CUSTOM ORDER: Please advise if it should be accepted. MBL has been approached by an important customer who would like to have custom limited-edition beer produced and bottled for the customer's upcoming wedding. The customer requires one bottle of beer to be provided to each of the 600 wedding guests. As MBL is operating at capacity, these 600 bottles will replace sales of MBL's regular bottles. MBL will not be able to sell the limited-edition beer to regular customers; however, the customer has informed MBL that if the beer be a hit that the customer will be re-ordering the beer on wedding anniversaries. The customer has offered to pay $7,000 for the order. It is expected that two test batches will be prepared at a cost of $1,000 each. The brew master is paid an annual salary $60,000 and works 50 weeks a year. It is expected that the brew master will devote two weeks to creating and producing the limited-edition beer. The following costs will be incurred for the limited-edition beer on a per bottle basis: Labour $0.15 Ingredients $0.40 Bottle $0.10 Depreciation $0.10 Overhead costs $0.23 The specialty labels and packaging will be custom designed at a cost of $500 and each label will cost $1.25, while packaging will cost $0.75. MBL sells a 6-pack of beer for $15 and earns a contribution margin of 40%.
Managerial Accounting An Integrative Approach
ISBN: 9780999500491
2nd Edition
Authors: C J Mcnair Connoly, Kenneth Merchant