Reference no: EM133068056
In response to market trends and customer enquiries, Super Elliott, a bicycle company from Adelaide, South Australia, is planning to restart production of some vintage bicycle models from the firm's archives. (See example below)
The fixed cost to restart production is Fixed Cost AUD per model. Once production starts the variable cost to make each bicycle is Variable Cost AUD per bike. However, due to limited factory capacity for any bicycles production over Regular Time Production Capacity total bicycles there will be additional charge of Overtime Cost AUD per bicycle to cover overtime costs. (i.e. If Regular Time Production Capacity is 1000 bicycles, Variable Costs AUD per bicycle for the first 1,000 bicycles and Variable Cost AUD + Overtime Cost AUD per bicycle for bicycles 1,001 and more.) The firm's management is trying to decide if the firm should pursue export opportunities (Estimated combined Domestic and Foreign Sales of bicycles per model) or only concentrate on the domestic (Australian) market (Estimated Domestic Sales of bicycles per model). Calculate the total cost per bicycle for the two (2) options. Which of the two (2) options do you recommend? Why?
Fixed Cost Bike AUD = $121,200.00
Variable Cost Bike AUD =$230.00
Domestic Sale Bikes (Units) =625
Domestic and Foreign Sales Bike (Units) =990
Regular Time Plant Capacity =940
Overtime Cost AUD =$22.20