Problem #3: More Relevant Information (16 points) Ben\'s Hero Kettles Inc. produ

Question

Problem #3: More Relevant Information (16 points) Ben's Hero Kettles Inc. produces large, caste iron cooking kettles. Management is analyzing its costs to determine their behaviors and rates as part of the process of developing cost-volume-profit equations for the business. To date management has gathered the following data: 1 The company currently produces and sells 12,000 kettles per month at a selling price of $120 per kettle. 2) The selling price of the kettles is based on the following manufacturing costs per unit: Direct Materials Direct Labor Variable Overhead Fixed Overhead $30 18 12 10 3ng Expenses: Other Variable Fixed Expenses 5% of sales $4 per unit 130,000 per month 4) General and Administrative Expenses 152,000 per month 1. Assume that Ben's Hero Kettles Inc. will continue to produce and sell at a volume of 12,000 kettles per month. This volume utilizes 90% of the Company's production capacity At the beginning of the current month, the sales manager of Ben's Hero Kettles Inc. was approached by Johnnie5 Inc. with an offer to purchase 1,250 units at a special, one-time price of $70 per unit. a. Cmpute the amount of excess capacity that Ben's Hero Kettles Inc. has available during the current month to accept the special order from Johnnie5 Inc. Your Answers Excess Capacity Available (2 points] Supporting Calculations Required:

Explanation / Answer

Kettles (A.) Current Capicity @ 90% 12000 Total Production Capacity 13333 12000/90% Excess Capacity Available 1333 13333-12000 12000 Kettles (B.) Selling Price 120 Less: Variable Expenses: Manufacturing Direct Material 30 Direct Labour 18 Variable OH 12 60 60 Selling Commission@5% 6 Other Variable 4 10 10 Contribution Margin 50 Less: Fixed Expenses Selling 130000/12000 10.83 G&A Expenses 152000/12000 12.67 Net Operating Income 26.50 Not: The proposal should not be accepted because company has $ 70 variable cost whereas the proposed purchase price is also $ 70 which not meet fixed cost of the company (C.) Increased Contribution Margin 1250*(70-60-4) 7500 Less: Fixed Costs Selling 130000/13250*1250 12264.15 G&A Expenses 152000/13250*1250 14339.62 26603.77 -26603.77 Incremental Profit(Loss) -19103.77

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