JUST REQ C. Please Carla Vista Packaging Company is a leading manufacturer of ca
ID: 2558520 • Letter: J
Question
JUST REQ C. Please
Carla Vista Packaging Company is a leading manufacturer of cardboard boxes and other product packaging solutions. One of the company’s major product lines is custom-printed cake boxes that are sold to some of the country’s best known bakeries at a price of $0.50 per box. To maintain its high-quality image, Carla Vista uses a thick premium coated paper for all of its cake boxes. Based on annual production of 1,000,000 boxes, Carla Vista’s cost for producing a box is as follows:
Andrea Borden, a recent graduate of the Culinary Institute of America, is opening a new bakery in her hometown. She recently contacted Brad Lail, Carla Vista’s top salesperson, about purchasing cake boxes for her new store. Brad described Carla Vista’s boxes, emphasizing the high-quality paper and the unique printing process the company uses. Andrea is looking for ways to lower her operating costs, so after hearing Brad describe Carla Vista’s boxes, she told him that all she needed was a simple, unprinted box. Andrea also told Brad that she needs 11,600 boxes and is willing to pay $0.23 per box.
(a) Based on Andrea’s offer of $0.23 per box for an unprinted box, should Carla Vista accept Andrea’s order? Carla Vista currently has excess production capacity and can easily accommodate Andrea’s order in the production schedule.
(b) Since Andrea wants a simple box, Brad is exploring using a lighter-weight paper for her boxes. He has found a suitable paper that will cost $0.09 per box. If Carla Vista uses this lighter-weight paper for Andrea’s boxes, should the company accept Andrea’s order at a price of $0.23 per box? Carla Vista currently has excess production capacity and can easily accommodate Andrea’s order in the production schedule.
(c) After visiting with Andrea, Brad received a fax from one of London’s top bakeries. The bakery’s normal box supplier suffered some fire damage and is unable to ship the bakery’s order of 11,600 boxes this month. The bakery’s owner is asking if Carla Vista can fill a onetime rush order of 11,600 boxes printed with the bakery’s logo. The bakery is willing to pay a 10% price premium to expedite the order. If Carla Vista accepts the order, it will incur $790 in export taxes and shipping.
Calcuate the Profit on special order.
Should Carla Vista accept the London bakery’s offer?
Explanation / Answer
Annual Capacity 10,00,000 Sales Price 0.50 Costs Per Box: Paper 0.14 Ink 0.05 Direct Labor 0.04 VOH 0.07 FOH 0.09 Total 0.39 1 Special Order: Relevant Cost for Order: Paper 0.14 Ink 0.00 Not Required Direct Labor 0.04 VOH 0.07 FOH 0.00 Sunk Cost Total 0.25 Special Offer 0.23 Since Price is below the cost, Order should be rejected 2 Special Order: Relevant Cost for Order: Paper 0.09 Revised Cost Ink 0.00 Not Required Direct Labor 0.04 VOH 0.07 FOH 0.00 Sunk Cost Total 0.20 Special Offer 0.23 Since Price is above the cost, Order should be accepted 3 Special Order from London: Relevant Cost for Order: Paper 1,624 Ink 580 Direct Labor 464 VOH 812 FOH 0 Sunk Cost Additional Cost 790 Export Tax & Shipping Total 4,270 Regular Price 0.50 Special Offer 0.55 (0.50*110%) Total Revenue 6,380 (11600*0.55) Profit on Order 2,110 Since it is resulting in gain, company should accept the order
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