Reference no: EM133094387
Question - Vaughn Inc. manufactures two electronic products, widgets and gadgets, and has a capacity of 1,900 machine hours. Prices and costs for each product are as follows:
|
|
Widget
|
Gadget
|
|
Selling price per unit
|
$259
|
$339
|
|
Variable costs per unit
|
|
|
|
Direct materials
|
33
|
44
|
|
Other direct costs
|
13
|
21
|
|
Variable Manufacturing overhead costs*
|
39
|
53
|
* Variable manufacturing overhead costs are applied at a rate of $49 per machine hour.
Tri Town Industries, a potential client, has offered $259 per unit to Vaughn for 259 special units. These 259 units would incur the following production costs and time:
Direct materials $8,721
Other direct costs $3,900
Machine hours 234
Required -
1. Assume that Vaughn has enough excess capacity to produce the special order. Calculate what the total contribution would be if the special order from Tri Town were accepted.
2. Assume that Vaughn is currently operating at full capacity. Calculate the contribution margin per unit and per machine hour.
3. Determine whether Vaughn should produce the units for the special order instead of widget or gadget units.
4. Assume that Vaughn is actually operating at 95% of full capacity. Calculate what the opportunity cost would be if Tri Town's special order were accepted.
5. Assume that Vaughn is actually operating at 95% of full capacity, and additional machines can be rented at a cost of $35,900 to produce Tri Town's special order. If the special order is accepted, calculate its effect on Vaughn's profit.