Reference no: EM133167356
Question - Chocalicious Ltd manufactures a range of sweets and chocolates which it sells under its own brand name in supermarkets throughout Ireland. The company has been in operation for twenty years and is currently operating at 80% of its full manufacturing capacity. One of its top selling products are whiskey chocolates. Recently, Bidl, a low cost supermarket chain, approached Chocalicious Ltd and asked if it would be interested in supplying their whiskey chocolates and allow them to be sold under the Bidl brand in its supermarkets as part of a one-off, three month promotion. To supply all of its supermarkets during the three month promotion, Bidl requires 50,000 boxes of the whiskey chocolates per month and has offered to pay Chocalicious Ltd £3.60 per box. The following information relating to the production of one box of the whiskey chocolates is available:
1. Each box of the whiskey chocolates requires 0.25 kg of chocolate. Chocalicious Ltd purchases the chocolate in bulk at a price of £5 per kg.
2. To manufacture a box of the whiskey chocolates 0.1250 kg of sugar is required and the company purchases sugar for £2 per kg from its regular suppliers.
3. Chocalicious Ltd adds 0.015 litres of whiskey to each box of chocolates. It purchases whiskey directly from an Irish Distillery for £7 per litre bottle.
4. The chocolates are sold in boxes which Chocalicious Ltd purchases from its suppliers in batches of 100,000 for £34,000. These boxes are in constant use in the manufacture of a variety of Chocalicious products.
5. Chocalicious Ltd applies fixed production overheads to products based on machine hours. Budgeted fixed production overheads allocated to the whiskey chocolates for the year amount to £45,000 and the company expects that in total 100,000 machine hours will be spent manufacturing these chocolates. The production team in Chocalicious Ltd calculated that on average each box of the whiskey chocolates requires a total of six minutes of machine time. Variable manufacturing overheads have been calculated at £1 per box.
6. Each box of the whiskey chocolates supplied must have a Bidl label. The labels cost £5,000 for a batch of 500,000 and if not used for this contract they would be scrapped.
7. Another chocolate manufacturer has offered Chocalicious Ltd £35,000 per month to lease machinery that would be required to produce the chocolates for Bidl.
What is the relevant cost for Chocolate for the special order?
What is the relevant cost for Sugar for the special order?
What is the relevant cost for Whiskey for the special order?
What is the relevant cost for Boxes for the special order?
What is the relevant cost for the fixed production overheads for the special order
What is the relevant cost for variable production overheads for the special order?
What is the relevant cost for labels for the special order?
What is the opportunity cost for the leased machinery associated the special order?
Overall Chocalicious should accept the special order?