What action accept or else reject the offer

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Reference no: EM134336

Question

Valstar is a mid-sized paint manufacturer that has experienced substantial growing in the past three years. Valstar is known for its extraordinary quality paints and reliable delivery schedules. Resulting in high customer satisfaction. Valstar emphases on these strategic objectives of quality, dependability and growth. Valstar manufactures paint in five gallon buckets (units) for commercial usage in building construction. Valstar's functioning capacity is 22000 five gallon buckets (units) per month and is currently selling 20000 buckets each month. Valstar has received an appeal for a special order of 5,000 five gallon buckets of paint for $125000 from A1 Construction. A1 Construction is the biggest construction company in the metropolitan area and surrounding region. A1 isn't a current customer of Valstar's. Production costs would be the similar as well as Valstar would experience additional set-up costs of $5000 to complete the A1 order. The subsequent information is for Valstar's existing operations

Sales & production data for 20,000 5-gallon units Amounts per unit (5-gallon bucket)

Sales price $ 38.00

Direct materials 7.00

Direct labor 5.00

Variable overhead 3.00

Fixed overhead 12.00

Variable marketing 2.00

Fixed marketing 1.00

No marketing costs would be related with the special order. Ever since the order is needed to comprehensive construction of one building that is near the estimated completion date A1 needs that Valstar fill the entire order of 5000 units.

Required- Complete all of the following questions. SHOW COMPUTATION TO SUPPORT ANSWERS. NO SUPPORTING CALULATIONS = NO CREDIT.

1) Does Valstar have the capacity to receive the special order from A1?

2) If Valstar receives A1's special order what is Valstar's cost from lost sales of current customers?

3) If Valstar has no surplus capacity what price should Valstar charge A1 for this special order?

4) If Valstar has surplus capacity what price should Varstar charge A1 for this special order?

5) Using a relevant cost analysis must Valstar accept the special order?

6) What action accept or else reject the offer do you recommend to Valstar's management? Explain why you recommend this action

Reference no: EM134336

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