In March of Year 3, Memories, Inc. receives a special order from a local museum
ID: 2453167 • Letter: I
Question
In March of Year 3, Memories, Inc. receives a special order from a local museum to purchase 5,000 dolls and 3,000 replicas for a special exhibit.
Direct material costs per unit remain at $.74 per doll and $.62 per replica.
Direct labor costs are $2.51 per doll and $2.78 per replica.
Monthly fixed selling and administrative costs are $15,300 while monthly fixed manufacturing overhead is $2,851.
The variable overhead cost is $.55 per figurine.
Sales price for the replicas is $5.25 each and the sales price for the dolls is $5.00 each.
Questions
Assuming that MI has sufficient excess capacity, what is the minimum price the company would be willing to accept for this special order? Assuming that the company does not have sufficient excess capacity, what minimum price would be acceptable? What qualitative factors should MI consider when deciding whether to accept the special order?
MI is nearing its manufacturing capacity and needs to consider ways to increase throughput. What options does the company have to increase capacity? What bottlenecks does it face? What recommendations would you make?
Explanation / Answer
Assuming that MI has sufficient excess capacity, what is the minimum price the company would be willing to accept for this special order?
Doll
Minimum price the company would be willing to accept for this special order = Direct material costs per unit + Direct Labor + Variable overhead
Minimum price the company would be willing to accept for this special order = 0.74 +2.51+0.55
Minimum price the company would be willing to accept for this special order = 3.80
Replica
Minimum price the company would be willing to accept for this special order = Direct material costs per unit + Direct Labor + Variable overhead
Minimum price the company would be willing to accept for this special order = 0.62 + 2.78 + 0.55
Minimum price the company would be willing to accept for this special order = 3.95
Assuming that the company does not have sufficient excess capacity, what minimum price would be acceptable?
Doll
Minimum price the company would be willing to accept for this special order = Sell price
Minimum price the company would be willing to accept for this special order = $ 5.25
Replica
Minimum price the company would be willing to accept for this special order = Sell price
Minimum price the company would be willing to accept for this special order = $ 5
What qualitative factors should MI consider when deciding whether to accept the special order?
MI is nearing its manufacturing capacity and needs to consider ways to increase throughput. What options does the company have to increase capacity?
The company have to increase capacity in form of Direct Material
What bottlenecks does it face? What recommendations would you make?
Direct material is the bottle neck does it face and therefore company should found alternative raw material in market to avoid material shortage.
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