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Melbourne Company manufactures standard and customised products. Below is Melbourne Company’s annual income statement: Standard Product...

Melbourne Company manufactures standard and customised products. Below is Melbourne Company’s annual income statement:

Standard Product

Customised Product

Total

Sales

$1,000,00

$2,000,000

$3,000,000

Direct materials

$100,000

$200,000

$300,000

Direct labour

$500,000

$800,000

$600,000

Depreciation

$4,000

$6,000

$10,000

Power (allocated)

$8,000

$4,000

$12,000

Rent (allocated)

$20,000

$20,000

$40,000

Heat and lighting (allocated)

$5,000

$5,000

$10,000

Total costs

$637,000

$1,125,000

$67,000

Profit

$363,000

$875,000

$1,238,000

A new customer has approached Melbourne Company requesting 10,000 units of the customised product and is offering to pay $20 per unit. Melbourne Company is currently operating at 100% of its full capacity, and if this special order is accepted it will need to reduce its current production of customised products by 10%. If the order is accepted, the associated direct material cost will be $2.50 per unit and direct labour cost will be $5 per unit. Melbourne Company will also need to spend an additional $1,000 for the purchase of a specialised equipment needed to produce this special order as the customer is requesting additional specifications to the customised product.

Required:

SHOW CALCULATION FOR EACH QUESTION IN THE RESPONSE BOX.

  1. Based on your analysis of relevant financial information, determine the financial impact of this special order for Melbourne Company.
  2. Based on your financial impact analysis, should Melbourne Company accept this special order? Why, why not? Please provide detailed explanations.
  3. What two qualitative factors might impact Melbourne Company’s decision about this special-order request? Please explain each factor in detail.

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Expert Solution

ekkarill92 answered 3 years ago
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