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Problem - Tancy Fancy Company has a maximum capacity to produce 20 000 units of serving trays per month. The unit cost is as follows:
Direct material cost: $4
Direct Labour cost: $6
Fixed Manufacturing overhead: $2
Variable manufacturing overhead: $1.20
Currently it produces and sells 15 000 units to its regular customers for $20. Tango Limited has approached Tancy Fancy Company with a business proposal to supply them with 5000 serving trays at a special price of $15 per tray.
Required -
1. Should the business proposal be accepted? Show all calculations.
2. If the business proposal is for 10 000 units, should it be accepted? Show all calculations.
3. What other strategic issues should be considered in making the decisions whether to accept or reject a special order.
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