The Gold Plus Company manufactures windows. Its manufacturing plant has the capacity to produce6,000windows each month. Current
Question:
The Gold Plus Company manufactures windows. Its manufacturing plant has the capacity to produce6,000windows each month. Current production and sales are5,000windows per month. The company normally charges$200per window.
Variable costs that vary with number of units produced | |
Direct materials | $150,000 |
---|---|
Direct manufacturing labor | 75,000 |
Variable costs (for setups, materials handling, quality control, and so on) that vary with number of batches, 200 batches × $1,000 per batch | 200,000 |
Fixed manufacturing costs | 200,000 |
Fixed marketing costs | 25,000 |
Total costs | $650,000 |
Gold Plus has just received a special one-time-only order for1 ,000 windows at $175 per window. Accepting the special order would not affect the company's regular business or its fixed costs. Gold Plus makes windows for its existing customers in batch sizes of 25 windows
( 200 batches ×25 windows per batch =5,000 windows). The special order requires Gold Plus to make the windows 10 batches of 100
windows.
1. | Should Gold Plus accept this special order? Show your calculations. |
2. | Suppose plant capacity were only 5,500 windows instead of 6,000 windows each month. The special order must either be taken in full or be rejected completely. Should Gold Plus accept the special order? Show your calculations. |
3. | As in requirement 1, assume that monthly capacity is6,000windows.Gold Plus concerned that if it accepts the special order, its existing customers will immediately demand a price discount of$5in the month in which the special order is being filled. They would argue that Gold Plus's capacity costs are now being spread over more units and that existing customers should get the benefit of these lower costs. Should Gold Plus accept the special order under these conditions? Show your calculations. |
Horngrens Cost Accounting A Managerial Emphasis
ISBN: 978-0134475585
16th edition
Authors: Srikant M. Datar, Madhav V. Rajan