13 Question 7 50 direct labour-hours per The Anvil Company is presently operatin

Question

13 Question 7 50 direct labour-hours per The Anvil Company is presently operating at 80% of its maximum capacity of 2 day. The company makes a single product and is selling all of its regular production, and anticipates that it will be able to maintain this level of sales in the foreseeable future. The company is also seeking ways to fully utilize the excess capacity and is considering a proposal to supply 10,000 units as a speci order is due in exactly 60 days. The proposed price per unit is S7.50. The regular selling price for this product is S10.50. The per-unit variable costs are al order. The Direct materials Direct labour (per 1/2 hour) Variable manufacturing overhead Sales commission $2.50 S3.00 $1.50 $0.50 Annual fixed manufacturing cost is S72,000. The company will not consider overtime production as a matter of policy and the production manager must fill the special order, if it is accepted, from the available capacity, even if it means having to divert regular production to the special order. There will be no commission or any accept the order if it is delayed beyond the 60-day deadline and will not accept an order quantity less than 10,000 units other administrative costs associated with the special order. The customer will not Required 5 Indicate whether the special order should be accepted. Show all calculations a. b. Calculate at what price per unit for the special order Anvil would be indifferent between accepting and rejecting the special order to extending the deadline in exchange for a reduction in the price of Suppose that the customer is open S0.01 per unit per day. Explain whether Anvil should attempt to negotiate an extension to the deadline 3 c. END OF EXAMINATION

Explanation / Answer

A

AS THE SELLING PRICE OF SPECIAL ORDER IS LESS THAN COST OF SPECIAL ORDER HENCE WE SHOULD NOT ACCEPT IT.

B. ANVIL WILL BE INDIFFERENT AT THE PRICE OF 8.2

C.

YES COMPANY CAN NEGOTIATE FOR THIS .

days per day 60 total hours 250 15000 LESS normal hours consumed 200 12000 balance hour 50 3000 HOURS FOR special order 5000 (10000*1/2) ADDITIONAL HOUR REQUIRED 2000 NO, OF UNIT CAN MAKE IN REQ HR 4000 (2000)/(1/2)

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