The manufacturing plant of Carilla Ltd . specializes in crafting specialized pieces for carnival. With a monthly
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Question:
The manufacturing plant of Carilla Ltd specializes in crafting specialized pieces for carnival.
With a monthly production capacity of pieces, the company currently manufactures and
sells pieces per month. Typically priced at $ per piece, the company's cost
breakdown for the ongoing production level is outlined below:
Variable costs that vary with number of units produced
Direct materials $
Direct manufacturing labor
Variable costs for setups, materials handling, quality control, etc.
that vary with number of batches, batches $ per batch
Fixed Costs
Fixed manufacturing costs
Fixed marketing costs
Total costs $
Carilla has just received a special onetimeonly order for pieces at $ per piece.
Accepting the special order would not affect the companys regular business. Carilla makes
pieces for its existing customers in batch sizes of pieces batches pieces per batch
pieces The special order requires Carilla to make the pieces in batches of each.
Required
Should Carilla accept this special order? Show your calculations.
Suppose plant capacity were only pieces instead of pieces each month. The
special order must either be taken in full or be rejected completely. Should Carilla accept the
special order? Show your calculations.
As in requirement assume that monthly capacity is pieces. Carilla is concerned that
if it accepts the special order, its existing customers will immediately demand a price discount
of $ in the month in which the special order is being filled. They would argue that Carillas
capacity costs are now being spread over more units and that existing customers should get the
benefit of these lower costs. Should Carilla accept the special order under these conditions?
Show your calculations.
By reference to the above data:
a Explain whether historical costs and future costs are relevant?
b Differentiate between quantitative and qualitative aspects in the process of decisionmaking?
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