Billboard Skateboard Company manufactures skateboards. Several weeks ago, the firm received an inquiry from Mayers Sdn. Bhd. Mayers wants to market a skateboard similar to one of Billboard, and has offered to purchase 11,000 units if the order can be completed in three months. The cost data for Billboard's Champion model skateboard are: Direct material RM16.40 Direct labour (0.25 hours @ RM18 per hour) RM4.50 Total manufacturing overhead: (0.5 machine hours @ RM40 per hour) RM20.00 Total RM40.90 The following additional information is available: i. The normal selling price of the Champion model is RM53.00; however, Mayers has offered Billboard only RM31.50 because of the large quantity it is willing to purchase. ii. Mayers requires a modification of the design that will allow a RM4.20 reduction in direct material cost. iii. Mayer's production supervisor notes that the company will occur RM7,400 in additional setup costs and will have to purchase a RM4,800 special device to manufacture these units. The device will be discarded once the special order is completed. iv. Total manufacturing overhead costs are applied to production at the rate of RM40 per machine hour. This figure is based in part on budgeted yearly fixed overhead of RM1,500,000 and planned production activity of RM60,000 machine hours (5,000 per month). v. Billboard will allocate RM3,600 of existing fixed administrative costs to the order as part of the cost of doing business. Required: Assume that pre sales will not be affected. Should the order be accepted from a. a financial point of view (that is, is it profitable?) Why? Show calculations. b. Assume that Billboard's current production activity consumes 70 per cent of planned machine hour activity. Can the company accept the order and meet Mayer's deadline? What options might Billboard consider if management truly wanted to do business with Mayer in hopes of building a long term relationship with the firm? С.
Billboard Skateboard Company manufactures skateboards. Several weeks ago, the firm received an inquiry from Mayers Sdn. Bhd. Mayers wants to market a skateboard similar to one of Billboard, and has offered to purchase 11,000 units if the order can be completed in three months. The cost data for Billboard's Champion model skateboard are: Direct material RM16.40 Direct labour (0.25 hours @ RM18 per hour) RM4.50 Total manufacturing overhead: (0.5 machine hours @ RM40 per hour) RM20.00 Total RM40.90 The following additional information is available: i. The normal selling price of the Champion model is RM53.00; however, Mayers has offered Billboard only RM31.50 because of the large quantity it is willing to purchase. ii. Mayers requires a modification of the design that will allow a RM4.20 reduction in direct material cost. iii. Mayer's production supervisor notes that the company will occur RM7,400 in additional setup costs and will have to purchase a RM4,800 special device to manufacture these units. The device will be discarded once the special order is completed. iv. Total manufacturing overhead costs are applied to production at the rate of RM40 per machine hour. This figure is based in part on budgeted yearly fixed overhead of RM1,500,000 and planned production activity of RM60,000 machine hours (5,000 per month). v. Billboard will allocate RM3,600 of existing fixed administrative costs to the order as part of the cost of doing business. Required: Assume that pre sales will not be affected. Should the order be accepted from a. a financial point of view (that is, is it profitable?) Why? Show calculations. b. Assume that Billboard's current production activity consumes 70 per cent of planned machine hour activity. Can the company accept the order and meet Mayer's deadline? What options might Billboard consider if management truly wanted to do business with Mayer in hopes of building a long term relationship with the firm? С.
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
Related questions
Question
Please help solve the question
Transcribed Image Text:Billboard Skateboard Company manufactures skateboards. Several weeks ago, the firm
received an inquiry from Mayers Sdn. Bhd. Mayers wants to market a skateboard similar
to one of Billboard, and has offered to purchase 11,000 units if the order can be
completed in three months. The cost data for Billboard's Champion model skateboard
are:
Direct material
RM16.40
Direct labour (0.25 hours @ RM18 per hour)
RM4.50
Total manufacturing overhead: (0.5 machine hours @ RM40 per hour)
RM20.00
Total
RM40.90
The following additional information is available:
i. The normal selling price of the Champion model is RM53.00; however, Mayers
has offered Billboard only RM31.50 because of the large quantity it is willing to
purchase.
ii. Mayers requires a modification of the design that will allow a RM4.20 reduction
in direct material cost.
iii. Mayer's production supervisor notes that the company will occur RM7,400 in
additional setup costs and will have to purchase a RM4,800 special device to
manufacture these units. The device will be discarded once the special order is
completed.
iv. Total manufacturing overhead costs are applied to production at the rate of RM40
per machine hour. This figure is based in part on budgeted yearly fixed overhead
of RM1,500,000 and planned production activity of RM60,000 machine hours
(5,000 per month).
v. Billboard will allocate RM3,600 of existing fixed administrative costs to the order
as part of the cost of doing business.
Required:
a.
Assume that present sales will not be affected. Should the order be accepted from
a financial point of view (that is, is it profitable?) Why? Show calculations.
b.
Assume that Billboard's current production activity consumes 70 per cent of
planned machine hour activity. Can the company accept the order and meet
Mayer's deadline?
What options might Billboard consider if management truly wanted to do
business with Mayer in hopes of building a long term relationship with the firm?
с.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, operations-management and related others by exploring similar questions and additional content below.Recommended textbooks for you
Practical Management Science
Operations Management
ISBN:
9781337406659
Author:
WINSTON, Wayne L.
Publisher:
Cengage,
Operations Management
Operations Management
ISBN:
9781259667473
Author:
William J Stevenson
Publisher:
McGraw-Hill Education
Operations and Supply Chain Management (Mcgraw-hi…
Operations Management
ISBN:
9781259666100
Author:
F. Robert Jacobs, Richard B Chase
Publisher:
McGraw-Hill Education
Practical Management Science
Operations Management
ISBN:
9781337406659
Author:
WINSTON, Wayne L.
Publisher:
Cengage,
Operations Management
Operations Management
ISBN:
9781259667473
Author:
William J Stevenson
Publisher:
McGraw-Hill Education
Operations and Supply Chain Management (Mcgraw-hi…
Operations Management
ISBN:
9781259666100
Author:
F. Robert Jacobs, Richard B Chase
Publisher:
McGraw-Hill Education
Purchasing and Supply Chain Management
Operations Management
ISBN:
9781285869681
Author:
Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson
Publisher:
Cengage Learning
Production and Operations Analysis, Seventh Editi…
Operations Management
ISBN:
9781478623069
Author:
Steven Nahmias, Tava Lennon Olsen
Publisher:
Waveland Press, Inc.