Question

In: Accounting

Robert Company makes bottles. The followings are the extracted information: Direct materials used 40,000 Maximum capacity...

Robert Company makes bottles. The followings are the extracted information:

Direct materials used	40,000	Maximum capacity	25,000
Direct labor	80,000	Units produced and sold	20,000
Variable manufacturing overhead	60,000	Finished Goods Inventory	$0
Fixed manufacturing overhead	5,000	WIP Inventory	$0
Variable selling and admin expenses	16,000	(Both Beginning and Ending)
Fixed selling and admin expenses	8,000
Unit selling price	$30

The Company gets a special order of 8,000 units. If the Company accepts the order, it has to incur an additional package cost $0.3 per unit.

a) Calculate the profit /(loss) impact if the Company accepts the special order, (assume no other fixed costs are affected.) if the special order unit price is $20.

b) Advise if the Company should accept the special order quantitatively.

Expert Solution

Standard units produced - 20000 units

Raw material cost per unit - 40000/20000 = $ 2 per unit

Labour cost per unit - 80000/20000 = $ 4 per unit

Variable Manufacturing overhead per unit - 60000/20000 = $ 3 per unit

Variable Selling & Marketing overhead per unit - 16000/20000 = $ 0.8 per unit

Calculaton of profit / loss for special order received

Sales Price (8000 X $20) $ 160000

Less:

Direct Material cost (8000 X $ 2) $ (16000)

Direct Labour cost (8000 X $ 4) $ (32000)

Variable Manufacturing overhead cost (8000 X $ 3) $ (24000)

-----------------

Contribution $ 88000

Less:

Variable selling & marketing cost (8000 X (0.8+0.3)) $ (8800)

Fixed manufacturing overhead $ (5000)

Fixed selling and admin expenses $ (8000)

-----------------

Net Profit / (loss) $ 66200

Profit ratio - 66200 / 160000 = 41.38%

The Company is advised to accept the special order as it will assist the company in making 41.38% profit on the sale after consideration of all expenses.

ekkarill92 answered 2 years ago

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