Computing minimum unit price without reducing its profits

Assignment Help Business Management

Reference no: EM1335063

Company A is operating a 70% capacity and is earning a satisfactory Return on Investment. Company A has been approached by Company B with an offer to buy 120,000 units. Company B needs the 120,000 valves over the next 4 months. Company B is prepared to pay $19 each for the units.

Company A's product cost, based on current attainable standards, for the units are:

Direct Materials - 5.00
Direct Labor - 6.00
Manufac. Sup. - 9.00
total 20.00

Manufacturing support costs are applied to production at the rate of $18 per standard direct labor hour and they pay for the shipping. This rate is made up of the following components:

Flexible man. support - 6.00
Capacity-related man. support - 12.00
so,
Cost driver rate - 18.00

Additional cost incurred in connection with sales of the unit include sales commissions of 5% and freight expense of $1 a unit. However, the company does not pay sales commissions on special orders that come directly to management.

In determining sales prices, Company A adds a 40% markup to product cost. This provides a $28 suggest selling price for the units. The marketing dept, however, has set the current selling price at $27 to maintain market share.

Production management thinks it can handle the Company B order without disrupting its scheduled production. The order, would however, require additional capacity-related manufacturing support costs of $12,000 per month in the form of supervision and clerks.

If management accepts the order 30,000 units will be manufactured and shipped to company B for the next 4 months. Shipments will be made in weekly consignments, with Company B paying for the shipping.

Questions that I have are:

1. What is the impact of accepting Company B's order on COmpany A's profits?

2. What is the minimum unit price that Company A should accept for Company B's order without reducing its profits?

Reference no: EM1335063

Questions Cloud

Explain marketing promotion strategies : Explain Marketing Promotion Strategies and Solution contains detailed description of integrated marketing communication

What is the rest balance at the end of one year : A student borrows 3,000 at an interest rate of 2 % per month on the unpaid balance. If the student pays $200 at the end of each month, what will be the remaining balance at the end of one year.

Approaches in compensation : Check and describe at least three trends or recent approaches in compensation that SEIIC should consider in its redesign effort.

Illustrate what was the effect of these rate reductions : Illustrate what was the effect of these rate reductions on revenue flow into the federal treasury. What impact upon our economy from these individual tax rate reductions.

Computing minimum unit price without reducing its profits : What is the minimum unit price that Company A should accept for Company B's order without reducing its profits?

Political influencing the growth of high-tech crime : A university in the Washington, DC area would like to offer a class next school year on protecting against cybercrime and would like to contract your team to provide a course design for its implementation.

Explain mixed pricing and selling : Explain Mixed Pricing and Selling and What methods can a company use to influence competitive behavior

Define types of bagels can''t be mixed in the same bin : Processing - Forty bagels will fit in a bin. Different knids of bagels can't be mixed in the same bin. Using the sample input above, the store will need two bins for plain bagels, on bin for cinnamon-raisin bagels and for bins for sesame seed bage..

Illustrate what trends do you see in the data sets : Illustrate what trends do you see in the data sets. What would you say to Support your assertions of trends with statistical evidence.

User Account

All Pages