In: Accounting
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.