Reference no: EM133012710

The company Tictac inc. (TI) has positioned itself in the market for high electronic clocks range. For several years, it has been operating at full capacity. Thus, she manufactures and sells 72,000 clocks per year. Its production and sales are carried out uniformly during the whole year. Management anticipates a decrease in sales in 2021. It does not will only operate at 80% of its normal capacity. This decrease will be temporary and the management expects sales to increase as early as January 2022.

You get the following information for 2021 established in the context of a production at full capacity.

Sale Price 48.00 $
Raw material (electronic mechanism) 8.25 $
Direct labor (1.5 hours per unit) 22.50 $
Indirect manufacturing costs (charged according to direct labor hours):
variable 4.50$
fixed 7.50$
Variable selling costs (1*)= 3.00 $
Fixed sales charge 2.00
(1*) Unit variable selling costs are established as follows:
Delivery fee $ 1.00
Packaging costs (with TI logo) 0.50
Commissions to sellers (payable on all sales) 1.50 $

• The company incurs a fixed administration fee of $ 360,000 per year. The manufacture of each clock requires a sophisticated electronic mechanism purchased with a specialized supplier, Électro inc. TI has negotiated a discount of quantity with this supplier. The agreement provides for a 25% discount on the purchase price when purchases for the year of this device reached 65,000 units and more. The reduction granted applies to all units of this mechanism purchased during the year at Électro inc. The company received an offer from a chain of stores willing to buy it 18,000 electronic clocks in 2021, no more and no less. The chain of stores would put their logo on the clock herself and pick them up at TI. In return, it offers a price of $ 42.00 per unit and the contract would be for a period of one year.

The following changes should be made to the product:

1) The mechanism for this clock would be of lower quality. Zetron company is ready to provide the necessary mechanism for the manufacture of this clock. the cost will be $ 7.00 per mechanism.

2) The production of this new product will require the purchase of special equipment from the cost of $ 15,000. This equipment will be used exclusively for the manufacture of new model.

3) As soon as it reaches a production level of 60,000 units, Tictac inc. must hire a second foreman at a cost of $ 48,000 per year. The salary of this category of personnel is part of the indirect workforce and is included in the amount of indirect fixed manufacturing costs.

4) Other costs would be the same for this order.

Question 1: Determine if Tictac inc. should accept this special order. To answer, do a differential analysis. To answer this question, ask the hypothesis that the company cannot exceed the production level of 72,000 units per year and that in order to accept this special order, it must reduce its sales to its regular customers. Present all supporting calculations.