User Account

All Pages

Special order manufacturer, Managerial Accounting

Assignment Help:
Viti Ltd, located in southern Viti Levu, manufactures a variety of industrial
valves and pipe fittings that are sold to customers in the eastern states.
Currently, the company is operating at about 70 per cent of capacity and is
earning satisfactory return on investment. Management has been approached by
Vanua Industries Ltd of Solomon Islands with an offer to buy 120,000units of
pressure valve. Vanua Industries Ltd manufactures a valve that is almost
identical to the pressure valve produced by Viti; however, a fire in Vanua
Industries’ valve plant has shut down its manufacturing operations. Vanua
needs the 120,000 valves over the next four months to meet commitments to its
regular customers. Vanua is prepared to pay $19 each for the valves. The cost of
the pressure valve produced by Viti, which is based on current attainable
standards, is $20, calculated as follows:
Direct material $5.00
Direct labour 6.00
Manufacturing overhead 9.00
$20.00
Manufacturing overhead is applied to production at the rate of $18 per standard
direct labour. This overhead rate is made up of the following components:
Variable manufacturing overhead $6.00
Fixed manufacturing overhead (traceable) 8.00
Fixed manufacturing overhead (allocated) 4.00
Applied manufacturing overhead rate $18.00
Additional costs incurred in connection with sales of the pressure valve include
sales commission of 5 per cent of sales, and freight expense of $1 per unit.
However, the company does not pay sales commissions on special orders that
come directly to management. In determining selling prices, Viti adds a 40 per
cent mark-up to total product cost. This provides a $28 suggested selling price
for the pressure valve. The marketing department, however, has set the current
selling price at $27 in order to maintain market share. Production management
believes it can handle the Vanua Industries order without disrupting its
scheduled production. The order would, however, require additional fixed
3
factory overhead of $12,000 per month in the form of supervision and clerical
costs. If management accepts the order, 30,000 pressure valves will be
manufactured and shipped to Vanua industries each month for the next four
months. Vanua’s management has agreed to pay the shipping charge for the
valve.
Required:
1. Determine how many direct labour hours would be required each month
to fill the Vanua industries order. (5 marks)
2. Prepare an analysis showing the impact of accepting the Vanua Industries
order (15 marks)
3. Calculate the minimum unit price that management of Viti could accept
for the Vanua Industries order without reducing net profit. (5 marks)
4. Identify the factors, other than price, that Viti Ltd should consider before
accepting the Vanua Industries order.

Related Discussions:- Special order manufacturer

Costs classification, identify and explain the many classification of costs...

identify and explain the many classification of costs for planning, control.performance evaluation and decision making.

Monitoring receivables, A firm requires continuously monitoring and control...

A firm requires continuously monitoring and controlling its receivables to make sure that the dues are paid on the due date and no dues stay outstanding for a long period of time.

Tools of management accounting, Explain the tools of management accounting

Explain the tools of management accounting

Lease accounting, question:lease accounting implicit rate unknown,20%increm...

question:lease accounting implicit rate unknown,20%incremental rate leaseterm 4 years,find implicit rate using trial and error method.i know nothing about trial and error method in

Positioning, Positioning An essential part of the planning process is p...

Positioning An essential part of the planning process is positioning the organization to attain its goals. Positioning is a wide concept and depends on gathering and evaluating

What are the objectives of budgetary control, What are the Objectives of bu...

What are the Objectives of budgetary control 1) Planning : planning is an important managerial function. it helps to decide in advance, what to do how to do it when to do it a

Illustrate what the traffic can bear pricing, What the traffic can bear pri...

What the traffic can bear pricing Pricing based on what the traffic can bear is not a sophisticated method. It is used by retail traders as well as by some manufacturing firms.

Break Even Sales in Units, Kibble Company had the following functional inco...

Kibble Company had the following functional income statement for the month of July 2011: Kibble Company Functional Income Statement For the Month Ending July 31, 2011 Sales ($40 x

Budget, You recently began a job as an accounting intern at Indoor Racing L...

You recently began a job as an accounting intern at Indoor Racing Ltd. Your first task was to help prepare the cash budget for February and March. Unfortunately, the computer with

Economies or diseconomies of scale , Economies or Diseconomies of Scale ...

Economies or Diseconomies of Scale The costs of a value activity are often subject to economies or diseconomies of scale. Economies of scale occur from the capability to perfo

Write Your Message!

Captcha
Order Assignment

Featured Services

Order Now

Popular Subjects

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +91-977-207-8620

Phone: +91-977-207-8620

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd