Problem 2 The POW Corporation is working at full production capacity producing 15,000 units of a...

Problem 2

The POW Corporation is working at full production capacity producing 15,000 units of a unique product, Alpha. Manufacturing cost per unit for Alpha is:

Direct materials

Variable direct manufacturing labor

Manufacturing overhead

Total Manufacturing cost

$15

3

18

$36

Manufacturing overhead cost per unit is based on variable cost per unit of $8 and fixed costs of $150,000 (at full capacity of 15,000 units). Marketing cost per unit, all variable, is $6, and the selling price is $72.

A customer, JayCo, has asked POW to produce a one-time-only order of 4,000 units of Gamma, a modification of Alpha. Gamma would require the same manufacturing processes as Alpha. JayCo has offered to pay POW $50 for a unit of Gamma. No marketing costs would be incurred for this special order.

Required (show your workings):

Should POW accept JayCo’s special order of 4,000 units of Alpha? (Adding capacity to fulfil this special order is not an option). (12 points)
Now assume that POW had been working at less than full capacity, producing 11,000 units of Alpha, at the time that the JayCo offer was made. Calculate the minimum price POW should accept for Gamma under these conditions. (Ignore the previous $50 selling price.) (8 points)
Discuss two (2) qualitative factors that might reinforce and two (2) qualitative factors that might change POW’s decision in requirement 1. (5 points)

Expert Solution

ekkarill92 answered 1 year ago

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