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

Difference between, depreciation,depletion and amortisation

depreciation,depletion and amortisation

Invoice discounting or factoring, If a company creates sales to a number of...

If a company creates sales to a number of customers on credit terms this will have to wait for two or still three months before its debtors pay that they owe. It means that the deb

Exercises and problems, 5

5

Accrued expenses, The other source of spontaneous short-term financing is t...

The other source of spontaneous short-term financing is the accrued expenses which arise by the general conduct of business. An accrued expense is an expense which has been incurre

EOQ, a annual sales are 585000 unit. the purchase price per unit is $2. the...

a annual sales are 585000 unit. the purchase price per unit is $2. the carrying cost is 26% of purchase price of goods safty stock is 100000 units on hand two weeks are required fo

What is the meaning cost reduction, Normal 0 false false fa...

Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4 What is the Meaning Cos

#titlCase Study - Labor standards, Case Study Labor standards Geeta & Comp...

Case Study Labor standards Geeta & Company has experienced increased production costs. The primary area of concern identified by management is direct labor. The company is conside

Strategies in working capital management, No further banks were the sole so...

No further banks were the sole source of funds for working capital requires of the business sector. At current more finance options are obtainable to a Finance Manager to allow smo

What are the objectives of the cost accounting, Objectives of the cost acco...

Objectives of the cost accounting The Objectives of the cost accounting are ascertain of costs, fixation of selling prices, proper recording and presentation of cost data to th

Corporate Governance., Discuss the dominant compensation philosophy, share ...

Discuss the dominant compensation philosophy, share value creation and the link between company size and executive pay. Solve Parmalat''s case, which may be found in reading No. 8.

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