Accounting Assignment 4

Accounting Assignment 4 - 294 Assignment #4 Question 1 (25...

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1 294 Assignment #4 Question 1 (25 marks) In 2010, Duxon Company is operating at 80% of its maximum capacity (consistently all year) of 250 direct labour hours per day. The company makes a single product used in the plumbing industry and sells all of its regular production. They anticipate that they will be able to maintain this level of sales in the foreseeable future. The company is also seeking ways to fully utilize the excess capacity and is considering an offer from a plumbing retailer to supply 10,000 units as a special order at a price of $32 per unit. The order is due in exactly 60 days. The regular selling price is $40 per unit and the standard production costs are as follows: Direct labour (per 1/2 hour) $12 Direct materials $ 8 Variable manufacturing overhead $6 Sales commissions $5 Fixed over head per unit $1 The company will not consider overtime production as a matter of policy and the production manager must fill the special order, if it is accepted, from the available capacity. The company works only Monday through Friday, 50 weeks per year. There will be no commissions or other administrative costs associated with the special order. The customer will not accept the order if it is delayed beyond the 60-day deadline and will not accept an order quantity less than 10,000 units. Required: a) Indicate whether the special order should be accepted. Use incremental analysis and show all calculations. b) Calculate at what price per unit for the special order will Duxon be indifferent between
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Accounting Assignment 4 - 294 Assignment #4 Question 1 (25...

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