Special pricing decisions are typically one-time only orders and/or orders below the prevailing market price. A...
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Special pricing decisions are typically one-time only orders and/or orders below the prevailing market price. A company has a monthly capacity of 50, 000 units. However, its expected monthly production and sales for the next quarter at normal selling price are 35,000 units. The excess capacity is assumed to be short-term. A customer has offered to buy 3,000 units each month for the next three months at a price of 20 euros per unit. Extra selling costs for the order would be 1 euro per unit. Workers are paid fixed salary. a) Would you accept the offer? Explain your reasoning. Estimated costs and revenues (for 35,000 units): Direct labor Variable costs Manufacturing non-variable overheads Marketing and distribution costs Total costs: Sales Profit 420,000 350,000 280,000 105,000 1,155,000 1,400,000 245,000 Now, assume that spare capacity will be available for quite some time and that an opportunity for a contract of 15,000 units per month at 25 euros emerged involving 1 euro per unit special selling costs. No other opportunities exist so if the contract is not accepted direct labor will be reduced by 30%, manufacturing non-variable costs by 70,000 per month and marketing by 20,000. Facilities that are not used could be rented out at 25,000 euros per month. b) Would you accept the offer? Explain your reasoning. Special pricing decisions are typically one-time only orders and/or orders below the prevailing market price. A company has a monthly capacity of 50, 000 units. However, its expected monthly production and sales for the next quarter at normal selling price are 35,000 units. The excess capacity is assumed to be short-term. A customer has offered to buy 3,000 units each month for the next three months at a price of 20 euros per unit. Extra selling costs for the order would be 1 euro per unit. Workers are paid fixed salary. a) Would you accept the offer? Explain your reasoning. Estimated costs and revenues (for 35,000 units): Direct labor Variable costs Manufacturing non-variable overheads Marketing and distribution costs Total costs: Sales Profit 420,000 350,000 280,000 105,000 1,155,000 1,400,000 245,000 Now, assume that spare capacity will be available for quite some time and that an opportunity for a contract of 15,000 units per month at 25 euros emerged involving 1 euro per unit special selling costs. No other opportunities exist so if the contract is not accepted direct labor will be reduced by 30%, manufacturing non-variable costs by 70,000 per month and marketing by 20,000. Facilities that are not used could be rented out at 25,000 euros per month. b) Would you accept the offer? Explain your reasoning.
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Related Book For
Managerial Accounting
ISBN: 9780073526706
12th Edition
Authors: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer
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