Reference no: EM132789295

Question - Relic is a company that makes unique car parts. The two car parts they make are wagers and grippers. Their machines capacity limits are 1,000 machine hours. The required financial information provided by Relic are:

Wager Gripper

Selling price per unit $250 $330

Variable costs per unit

Direct materials $30 $35

Other direct costs $10 $12

Manufacturing overhead costs* $30 $44

Variable manufacturing overhead costs are applied at a rate of $40 per machine hour.

A possible client, Balboa Inc., is asking Relic to produce 250 units of a unique, special tool for $250 per unit. The following are the production costs and time to produce the 250 units:

Direct materials $8,000

Other direct costs $3,000

Machine hours 225

Required -

A. Assume Relic has sufficient excess capacity to produce Balboa's order. Calculate the potential total contribution if the special order is accepted.

B. Assume Relic is operating at full capacity. Calculate the contribution margin per unit and per machine hour. Should Relic produce the units for Balboa's special order instead of wager or gripper.

C. What if Relic is operating at 95% of full capacity. What would be the opportunity cost would if Balboa's special order is accepted.

D. If Relic is actually operating at 95% of full capacity but they have opportunity to rent additional machines for $35,000 to produce Balboa's special order. Calculate its effect on Relic's profit If they accept the special order.

E. What advice would you provide to Relic's stakeholders whether they have capacity or not about taking the special order?