Table Format Tools Word File Edit View Insert Revision questions Saved to Com Share >> Tell me References sert Draw Design Layout Ar Dictate Font Styles Sensitivity Paragraph 119.34 LO19.5 OMA dete Special order; financial and production considerations: manufacturer Mercury Skateboard Company manufactures skateboards. Several weeks ago, the firm received an inquiry from Venus Ltd. Venus wants to market a skateboard similar to one of Mercury's, and has offered to purchase 1 000 units if the order can be completed in three months. The cost data for Mercury's Champion model skateboard are: Direct material Direct labour (0.125 hours $18 per hour) Total manufacturing overhead: (05 machine hours as20 per hour) Total $ 8.20 2.25 10.00 $20.45 The following additional information is available, The normal selling price of the Champion model is $26.50, however, Venus has offered Mercury only $15.75 because of the large cuantity it is willing to parchase. Venus requires a modification of the design that will allow a $2.10 reduction in direct material cost Mercury's production supervisor notes that the company will incur 13700 in additional setup costs and will have to purchase a 12400 special device to manufacture these units. The device will be discarded once the special order is completed Total manufacturing our head costs are applied to production at the rate of $20 per machine hou This gure is based in porton budgeted yearly fixed overhead of $750 000 ard planned production activity of 60 000 machine hours o per month). Mercury will allocate too of existing fixed administrative costs to the order as part of the cost of doing business Required sure that present sales will not be affected. Should the order be accepted from a financial point dview That is, is it profitable? Why? Show calculations 2. Assume that Mercury's current production activity consumes 70 per cent of planned machine-hour activity. Can the company accept the order and meet Venus' deadline? 3 what options might Mercury consider if management truly wanted to do business with Venus in hopes of building a long-term relationship with the firm