Foxconn Industries is a manufacturer of 3D electronic parts. The company was recently invited to submit a bid on special order for 20,000 units of one of its most popular products.

The plant is currently operating at only 50% capacity and has recently shifted to a bigger factory space. There will be no marketing costs on the special order. The sales manager proposed to set the bid at $9 because she is sure that FoxxCon will win the bid at that price. The suggestion was met with strong objections from the rest of the executive committee members, the reason being that the company would make a loss on the special order at that price.

The costs information at the current production volume, and at the increased production volume (on the assumption of winning the bid) is as follows:

Required:

(a) Advise FoxxCon on the sales manager's proposal.

(b) List two (2) qualitative factors the company should consider in deciding how much to bid on this special order.

(c) Indicate the total opportunity cost of accepting the special order request, if (i) the selling price of normal sales is $20 per unit; and (ii) accepting the special order will result in the company losing 5,000 units of regular sales.
 

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Production volume Manufacturing costs: Direct materials Direct labour Manufacturing overhead Total manufacturing costs 40,000 $80,000 120,000 240,000 $440,000 60,000 $120,000 180,000 300,000 $600,000 Production volume Manufacturing costs: Direct materials Direct labour Manufacturing overhead Total manufacturing costs 40,000 $80,000 120,000 240,000 $440,000 60,000 $120,000 180,000 300,000 $600,000

Answer rating: 100% (QA)

Answer Requirement a Statement of Incremental costRelevant for such offer of 20000 units Amount Dire... View the full answer