Extra Shift Decision
The manufacturing capacity of Ritter Rotator Company's plant facility is 60,000 rotators per quarter. Operating results for the first quarter of this year are as follows:
Sales (36,000 units at $10) $360,000
Variable manufacturing and selling costs 198,000
Contribution Margin 162,000
Fixed Costs 99,000
Operating Income $63,000
A foreign distributor has offered to buy 30,000 units at $9 per unit during the second quarter of this year. Domestic demand is expected to remain the same as the first quarter.
a. determine the impact on operating income if Ritter accepts this order. What other considerations are relevant in this decision?
b. Assume that Ritter decides to run the extra shift so that it can accept the foreign with forgoing sales to regular domestic customers. the proposed extra shift will increase capacity by 25% and increase fixed cost by $25,000. Determine the impact on operating income if Ritter operates the extra shift and expects the export order. What other considerations are relevant in this decision?
Target Return on sales
Stacy Woo president of Caremore Inc., an appliance manufacturer in Seattle Wa., has been trying to decide whether one of the product managers Bill Mann has been achieving the company wide ROS target of %45. Stacy has just received data from the new target costing system regarding Bill's operation. Bill's sales volume is 300,000 with an average price of $500 and expenses totaling $90.
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