Special order manufacturer, Managerial Accounting

Viti Ltd, located in southern Viti Levu, manufactures a variety of industrial
valves and pipe fittings that are sold to customers in the eastern states.
Currently, the company is operating at about 70 per cent of capacity and is
earning satisfactory return on investment. Management has been approached by
Vanua Industries Ltd of Solomon Islands with an offer to buy 120,000units of
pressure valve. Vanua Industries Ltd manufactures a valve that is almost
identical to the pressure valve produced by Viti; however, a fire in Vanua
Industries’ valve plant has shut down its manufacturing operations. Vanua
needs the 120,000 valves over the next four months to meet commitments to its
regular customers. Vanua is prepared to pay $19 each for the valves. The cost of
the pressure valve produced by Viti, which is based on current attainable
standards, is $20, calculated as follows:
Direct material $5.00
Direct labour 6.00
Manufacturing overhead 9.00
$20.00
Manufacturing overhead is applied to production at the rate of $18 per standard
direct labour. This overhead rate is made up of the following components:
Variable manufacturing overhead $6.00
Fixed manufacturing overhead (traceable) 8.00
Fixed manufacturing overhead (allocated) 4.00
Applied manufacturing overhead rate $18.00
Additional costs incurred in connection with sales of the pressure valve include
sales commission of 5 per cent of sales, and freight expense of $1 per unit.
However, the company does not pay sales commissions on special orders that
come directly to management. In determining selling prices, Viti adds a 40 per
cent mark-up to total product cost. This provides a $28 suggested selling price
for the pressure valve. The marketing department, however, has set the current
selling price at $27 in order to maintain market share. Production management
believes it can handle the Vanua Industries order without disrupting its
scheduled production. The order would, however, require additional fixed
3
factory overhead of $12,000 per month in the form of supervision and clerical
costs. If management accepts the order, 30,000 pressure valves will be
manufactured and shipped to Vanua industries each month for the next four
months. Vanua’s management has agreed to pay the shipping charge for the
valve.
Required:
1. Determine how many direct labour hours would be required each month
to fill the Vanua industries order. (5 marks)
2. Prepare an analysis showing the impact of accepting the Vanua Industries
order (15 marks)
3. Calculate the minimum unit price that management of Viti could accept
for the Vanua Industries order without reducing net profit. (5 marks)
4. Identify the factors, other than price, that Viti Ltd should consider before
accepting the Vanua Industries order.
Posted Date: 10/22/2012 10:24:10 AM | Location : United States







Related Discussions:- Special order manufacturer, Assignment Help, Ask Question on Special order manufacturer, Get Answer, Expert's Help, Special order manufacturer Discussions

Write discussion on Special order manufacturer
Your posts are moderated
Related Questions
given a scenario when iddle capacity is less than the special order.in this case should we accept or reject the order

The Pinewood Furniture Company Pty Ltd plans to design two lines of chairs in the coming year-lounge and patio. The company is considering introducing an activity-based costing sys

Financial decisions are depends on specific considerations the major being the cash flows, liquidity and cost. Short-term working capital decisions or financial decisions are diffe

Ageing Schedule: AS is classifies outstanding accounts receivable at a specified point of time into various age brackets. A clarifying ageing schedule is specified below.

Carrying costs of inventory These are costs incurred because the firm has decided to maintain inventories. They generally consist of: •    Stock-out costs •    Insurance co

Archie Ltd manufactures a product called Gizmo. It uses the following direct inputs: Price Quantity Cost per unit of output Direct materials $4 per gram 10 grams per unit $40 per


Define the Balanced Score Card? 1. Distinguish between standard control and budgetary costing. 2. Define the ‘Balanced Score Card? Explain the steps in implementing ‘Balance

Controlling Things hardly go exactly as planned, and management should make a concerted effort to the monitor and adjust for their deviations. The managerial accountant is the

briefly discuss five characteristics of relevant cost