Note: Plase provide in Excel format Groovy Music Company produces compact discs

Question

Note: Plase provide in Excel format

Groovy Music Company produces compact discs of background music for restaurants and other retail shops. Its disc recording machines are capable of producing 50 discs per hour, and Groovy Music has a total of 5,000 machine hours of capacity. The unit-related cost of producing most discs is $3.00. The discs sell for $12.00 each. Food Mood Music Co. has approached Groovy Music with an offer to buy 10,000 copies of a disc for $9.00. Groovy Music estimates that for this special order the unit-related cost of producing the disc will be $5.00. In addition, to accept the special order, Groovy Music will have to purchase an additional special-purpose machine that will cost $6,000. Required: Assume that existing demand for Groovy Music's compact discs is 200,000 units. Prepare an analysis that indicates whether or not the special order should be accepted.

Explanation / Answer

Special order should be accepted since it would generate income of $34,000 Statement showing computations Particulars Amount Revenue from special order=10,000*9        90,000.00 Less Costs: Unit related cost = 10,000*5        50,000.00 Special purpose Machine          6,000.00 Total Costs        56,000.00 Income from special order = 90,000 - 56,000        34,000.00 Note: No of Machine Hours          5,000.00 Discs per hour                50.00 Total capacity to produce discs = 5,000*50      250,000.00 Existing demand in discs      200,000.00 Spare capacity        50,000.00

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