2) Bates Golf Supply produces a golf bag that sells for $220. Although the compa

Question

2) Bates Golf Supply produces a golf bag that sells for $220. Although the company's production capa 5,000 bags per year, only 4,000 bags are currently being produced and sold. The production costs fo bags are as follows: Unit-level material cost Unit-level labor cost Unit-level overhead Batch-level setup costs (500 units per batch) Product-level costs Allocated facility-level costs s 300,000 240,000 75,000 16,000 20,000 25,000 Golf Mart Stores has offered to purchase 1,000 golf bags as a one-time special purchase at a price of per bag. Required: 1) Prepare a quantitative analysis that indicates whether the special order should be accepted. 2) What qualitative factors should be considered in this special order decision?

Explanation / Answer

1)

**Number of Batch : 4000 units /500 in one batch = 8

Number of batch for 1000 units : 1000/500 =2

Offer should be accepted as it will result in incremental income of 7250

2)Qualitative Factors such as :

a)Increased in market share

b)Availability of capacity

c)Whether offer will be repeated

d)special offer effect regular sales

Per Unit Total Revenue 170 170000 less: Unit level material cost 300000/4000=75 (75000) unit level labor cost 240000/4000= 60 (60000) unit level overhead 75000/4000=18.75 (18750) Batchlevel cost 16000/8 =$ 2000 per batch (4000)   [2000*2] Product level cost 20000/4000=5 (5000) Allocated cost Not relevant as it will be incurred whether offer is accepted or not Incremenal income /(c0st) 7250

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