Question

Taino Computers, Inc. makes a variety of computers. One of these products is a PC model: Yukiyu-XL. This model includes the ultimate in technology and is in strong demand. Expected demand for this year is 20,000 units. Full production capacity for Yukiyu-XL is 25,000 units, but 20,000 units are considered normal capacity. The following unit price and breakdown (per unit) is applicable in 2014:

                                                                                               

Sales Price per unit	$255.50
Less manufacturing costs:
Materials	$85.00
Direct Labor	$30.00
Overhead: Variable	$25.00
Fixed	$20.00
Total manufacturing costs per unit	$160.00
Gross Margin	$95.50
Less selling and administrative expenses:
Selling: Variable	$15.00
Fixed	$20.00
Administrative, Fixed	$15.00
MS Office, variable*	$23.00
Total selling and administrative expenses per unit	$73.00
Net Profit before taxes per unit	$22.50

Two types of MS Office are available: deluxe for $33 per unit and student version for $23 per unit.

During May, the company received 2 special orders request from: SUPER PC and GREAT BUY. These orders are not part of the budgeted 20,000 sales units of Yukiyu-XL for 2014, but there is sufficient capacity for possibly one order to be accepted.

Orders received and their terms are:

Order form SUPER PC: 2,400 units at $310 per unit with MS Office deluxe $33 per unit.

Order form GREAT BUY: 3,500 units at $450 per unit with MS Office student version $23 per unit.

Since these orders were made directly to Taino Computers, Inc., no variable selling costs will be incurred.

Analyze the profitability of each of these two special orders.

Which special order should be accepted?

What other aspects need to be considered in addition to profitability?

Answer 1

Order from Super PC:
Incremental revenue (2400 units @310)				744000
Less: Incremental cost
Material (2400*85)				204000
Labour (2400*30)				72000
Variable Mfg Oh (2400*25)				60000
MS office (2400*33)				79200
Incremental income				328800
Order from Great Buy:
Incremental r evenu (3500 units @ 450)				1575000
Less: Incremental cost
Material (3500*85)				297500
Labour (3500*30)				105000
Variable Mfg Oh (3500*25)				87500
MS office (3500*23)				80500
Incremental income				1004500
Order from Great Buy shall be accepted
Other aspects to be considered:
1. Payment terms of customers.
2. Delivery schedule to be checked for to be incorporated with regular supply to customers.