Sandhill Packaging Company is a leading manufacturer of cardboard boxes and othe
ID: 2564526 • Letter: S
Question
Sandhill 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, Sandhill uses a thick premium coated paper for all of its cake boxes. Based on annual production of 1,000,000 boxes, Sandhill’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, Sandhill’s top salesperson, about purchasing cake boxes for her new store. Brad described Sandhill’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 Sandhill’s boxes, she told him that all she needed was a simple, unprinted box. Andrea also told Brad that she needs 10,800 boxes and is willing to pay $0.25 per box.
a) Based on Andrea’s offer of $0.25 per box for an unprinted box, should Sandhill accept Andrea’s order? Sandhill currently has excess production capacity and can easily accommodate Andrea’s order in the production schedule.
Sandhill should or should not accept the order?
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 10,800 boxes this month. The bakery’s owner is asking if Sandhill can fill a onetime rush order of 10,800 boxes printed with the bakery’s logo. The bakery is willing to pay a 10% price premium to expedite the order. If Sandhill accepts the order, it will incur $816 in export taxes and shipping.
Calcuate the Profit on special order.
accept the special order.
Paper $0.12 Ink 0.05 Direct labor 0.06 Variable overhead 0.09 Fixed overhead 0.10 Total cost per box $0.42Explanation / Answer
a) Incremental costs for making the new boxes =
0.09
0.27
As the costs of making the box is more than the 0.25 , Sandhill should not accept the order.
b) If the paper cost reduces to 0.07 , the total variable cost is = 0.22 per box.
Sandhill will make a contribution of 0.03 per box , therefore he should accept the order.
c)
0.23
Yes , Sandhill should accept the offer.
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Paper $0.12 Ink 0.00 as she wants unprinted box Direct labor 0.06 Variable overhead0.09
0.27
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