Grinch's Whoville Corporation (Grinch) manufactures a basic electric shaver. Grinch is currently at manufacturing capacity, producing...
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Grinch's Whoville Corporation ("Grinch") manufactures a basic electric shaver. Grinch is currently at manufacturing capacity, producing 20,000 shavers per month. Grinch normally sells the basic shaver for $250.00 per unit. Cost information based on current production for the shavers are: Direct labour Direct materials $910,000 860,000 Variable manufacturing overhead 724,000 320,000 Fixed manufacturing costs 650,000 410,000 Variable marketing costs Fixed marketing costs Variable marketing costs are composed of two elements. 40% of the variable cost is for sales commissions and 60% of the cost relates to shipping. Required: 1. What is the unit contribution for each shaver? (3 marks) 2. Grinch has received a special one-time order for 5,000 basic shavers at a selling price of $230.00 per shaver. The special order will not incur sales commission costs but Grinch will have to purchase a special engraving machine that will cost $10,000. The order must be accepted in full or rejected completely. Should Grinch accept the order? What is the net benefit/(loss)? (4 marks) 3. Assume Grinch accepts the special order with a revised selling price per unit. The CEO wants to ensure that net operating income for the company as a whole increases by 5% if the order is taken. What is the minimum price per unit Grinch should charge the customer to achieve this result? (4 marks) 4. Refer to the original information and information in R2. Martha May Corporation, a small manufacturer, has offered to supply Grinch with 5,000 comparable basic electric shavers at a cost of $210 per shaver. If Grinch purchases from Martha May, all variable manufacturing costs will be eliminated. The only variable cost that will remain is shipping cost. Should Grinch accept the special order under these conditions? Explain and provide quantitative support for full marks. (4 marks) Grinch's Whoville Corporation ("Grinch") manufactures a basic electric shaver. Grinch is currently at manufacturing capacity, producing 20,000 shavers per month. Grinch normally sells the basic shaver for $250.00 per unit. Cost information based on current production for the shavers are: Direct labour Direct materials $910,000 860,000 Variable manufacturing overhead 724,000 320,000 Fixed manufacturing costs 650,000 410,000 Variable marketing costs Fixed marketing costs Variable marketing costs are composed of two elements. 40% of the variable cost is for sales commissions and 60% of the cost relates to shipping. Required: 1. What is the unit contribution for each shaver? (3 marks) 2. Grinch has received a special one-time order for 5,000 basic shavers at a selling price of $230.00 per shaver. The special order will not incur sales commission costs but Grinch will have to purchase a special engraving machine that will cost $10,000. The order must be accepted in full or rejected completely. Should Grinch accept the order? What is the net benefit/(loss)? (4 marks) 3. Assume Grinch accepts the special order with a revised selling price per unit. The CEO wants to ensure that net operating income for the company as a whole increases by 5% if the order is taken. What is the minimum price per unit Grinch should charge the customer to achieve this result? (4 marks) 4. Refer to the original information and information in R2. Martha May Corporation, a small manufacturer, has offered to supply Grinch with 5,000 comparable basic electric shavers at a cost of $210 per shaver. If Grinch purchases from Martha May, all variable manufacturing costs will be eliminated. The only variable cost that will remain is shipping cost. Should Grinch accept the special order under these conditions? Explain and provide quantitative support for full marks. (4 marks)
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Answer 1 To calculate the unit contribution for each shaver we need to subtract the variable costs per unit from the selling price Variable costs per ... View the full answer
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Managerial Accounting Tools for business decision making
ISBN: 978-0470477144
5th edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
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