Reference no: EM133132612
Question - Anchor Company manufactures a variety of tool boxes. The firm is currently operating at 80% of its full capacity of 6,400 machine- hours per month. Each unit requires 30 minutes of machine time. Its sales manager has been looking for special orders to make productive use of the excess capacity. JCL Ltd., a potential customer, has offered to buy 10,000 tool boxes at $13.90 per box, provided that the entire quantity is delivered in two months. The current per-box cost data are as follows:
Direct materials $4.10
Direct labour (X hour at $12.40/hour) 6.20
Total manufacturing overhead 3.60
Total unit product cost $13.90
Both fixed and variable overhead are allocated using direct labour-hours as a base. Variable overhead is $3.10 per direct labour-hour. Without the order, Anchor would have enough business to operate at 5,120 direct labour-hours in each of the next two months. The regular selling price of the tool boxes is $16.90. A sales commission of 50 cents per unit is paid to sales representatives on all regular sales.
No additional selling or administrative expenses are anticipated on account of accepting this special order and no commissions will be paid on this special order.
The production manager is concerned about the labour time that 10,000 boxes would require. She cannot schedule overtime because Anchor has a policy against it. JCL will not accept fewer than 10,000 tool boxes. Therefore, in order to fill the special order, it would be necessary for Anchor Company to divert some of its regular sales to the special order.
Required - Prepare contribution margin income statements for the two-month period both with and without the special order.
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