Given Information
Manufacturing costs
Direct material $4.00 per unit
Direct labour $2.00 per unit
Variable overhead $0.80 per unit
Fixed overhead $10,000
Marketing costs
Variable $0.50 per unit
Fixed $15,000
Calculation of monthly profit during a summer month when all 40,000 boxes produced in a month are sold
|
Particulars |
Rate |
Quantity |
|
Sales |
9.50 |
40,000 |
|
Direct Material |
4.00 |
40,000 |
|
Direct Labour |
2.00 |
40,000 |
|
Variable Overhead |
0.80 |
40,000 |
|
Variable Marketing Costs |
0.50 |
40,000 |
Acceptance / Rejection – Yes, this offer can be accepted because it leads to a profit of $500 in first month and for the following month the profit will be $1,500. And further, the company is not required to incur additional cost in terms of capacity enhancement, as the company is already having an extra capacity of upto 10,000 boxes per month in the month of autumn and winter and this offer requires 5000 boxes in the month of autumn and winter only. So, for this offer, the company is not required to incur any additional fixed cost. Other factor which needs to be considered are as follows:
Another request has come in the form of a long term government contract which wants the company to supply 10,000 boxes within the country per month for $8 per box. Analysis of this Long term government contract is given below:
Acceptance / Rejection (assuming no capacity expansion) – This offer should be accepted as the per box cost of production is $6.80 apart from its fixed costs and marketing costs and the government is offering $8 per box. Meaning thereby the company will have a profit of $1.20 per box per month on 10,000 boxes in total a profit of $12,000. So, this offer can be accepted.
|
Particulars |
Rate |
Quantity |
|
Sales |
8.00 |
10,000 |
|
Direct Material |
4.00 |
10,000 |
|
Direct Labour |
2.00 |
10,000 |
|
Variable Overhead |
0.80 |
10,000 |
Acceptance / Rejection (assuming capacity expansion) – As this is a long term contract, it is further assumed that the company is having excess capacity and does not require any further fixed costs or capacity expansion costs and will have a profit of $12,000. However, if the capacity needs to be increased, it will increased the fixed cost for the company. However, the company is having excess capacity in the month of autumn and winter but for the months of summer and spring, the company is already producing 40,000 boxes. So, in case of capacity expansion, it is assumed that the fixed overhead will increase in same proportion. So, the cost per set will be $7.05. In this case, the company will earn a total profit of $9,500. So, this offer can be accepted from this point of view as well.
A request has come from an outside supplier to supply 8,000 boxes of fruit year round(each month) for a price of $7.80 per box. The Citrus Company would incur additional freight costs of $0.20 per box but no other additional costs. Again, this offer as well will have two alternatives, one is if assumed that the company is already having additional capacity and another if capacity is to be increased. Analysis of this offer.
Acceptance / Rejection (assuming no capacity expansion) – This offer should be accepted as the per box cost of production is $7.00 apart from its fixed costs and marketing costs and the supplier is offering $7.80 per box. Meaning thereby the company will have a profit of $0.80 per box per month on 8,000 boxes in total a profit of $6,400. So, this offer can be accepted.
|
Particulars |
Rate |
Quantity |
|
Sales |
7.80 |
8,000 |
|
Direct Material |
4.00 |
8,000 |
|
Direct Labour |
2.00 |
8,000 |
|
Variable Overhead |
0.80 |
8,000 |
|
Freight |
0.20 |
8,000 |
Acceptance / Rejection (assuming capacity expansion) – Now, in this case, it is assumed that the company is not having additional capacity and thus require to incur fixed costs as well. Further, it is assumed that the fixed costs will increase in the proportion of units only. And in this case, as well, the company will have an profit of $4,400 per month on sale of 8000 boxes. So, this offer can be accepted.
The Citrus Company has an offer to rent out its property to the government so that affordable housing can be built. The government would pay the Citrus Company $60,000 per month ,assuming it would use the property on an ongoing basis. So, in this case the company will have a profit or income of $60,000 per month.
Now, another option with the company is to continue producing the boxes, i.e. 40,000 boxes in Spring and Summer months and 30,000 boxes during Autumn and Winter months.
Profit during Autumn and Winter month
|
Particulars |
Rate |
Quantity |
|
Sales |
9.50 |
30,000 |
|
Direct Material |
4.00 |
30,000 |
|
Direct Labour |
2.00 |
30,000 |
|
Variable Overhead |
0.80 |
30,000 |
|
Variable Marketing Costs |
0.50 |
30,000 |
So, the company will earn a profit of $63,000 in the month of Summer and Spring and $41,000 in the month of Autumn and Winter. Yearly profit for the company under its production will be $624,000 (assuming each season remain for 3 months).
So, the offer of government should be accepted, as this offer is profitable in the month of summer and springs when the company will earn $41,000 from its regular production and government will give $60,000. But during the month of autumn and winter the company will earn more on its own production by $3000 rather than government offer. But if we look in totality, the government is supposed to give $60,000 per month meaning thereby $720,000 yearly whereas the own production of company will give $624,000 yearly. So, the government offer will give additional $96,000. So, this offer sho
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download