Calculate the available production capacity

Reference no: EM133474185

Case: West Face Company produces compasses for cross-country skiing.

The production capacity is 45 000 compasses and the company is currently operating at 85 per cent capacity. Variable manufacturing costs are $10 per unit. Fixed manufacturing costs are $425 000.

The compasses are normally sold directly to Outdoor Adventures at $25 each.

West Face Company has an offer from North Top Company (a foreign wholesaler) to purchase an additional 5000 compasses at $13 per unit.

Required:

Question 1: Calculate the available production capacity.

Question 2: Calculate the contribution margin per unit for both the current production of compasses and the special order compasses.

Question 3: Should the special order be accepted? Show calculations.

Question 4: What is the opportunity cost if North Top Company required 10 000 compasses?

Question 5: Would you recommend the special order if North Top Company required 10 000 compasses?

Reference no: EM133474185

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