Wallace Company manufactures a variety of valves and fittings used in industrial plumbing that are sold to customers in other Canadian provinces. Currently, the company is operating at about 70 percent capacity, and is quite profitable. Tudor Industries, located in Wales, has approached management to purchase 120,000 units of a pressure valve, and is prepared to pay $21 per valve. Wallace's product cost for each pressure valve includes the following: Direct materials $6 Direct labour Variable manufacturing overhead Fixed manufacturing overhead Total manufacturing cost 3 6. $23 There will be no sales commission costs on this order, as it has come directly from management, and Tudor will cover all shipping costs. Currently, the pressure valves are sold for $30 to its other customers. Production management believes that it can handle the Tudor order without disrupting its current scheduled production. The order, however, will require an additional fixed overhead cost of $48,000 for supervision and clerical costs. Required: Prepare an analysis to support whether Wallace should accept this special order or not. Show all calculations. Identify at least two strategic qualitative factors that Wallace should consider in its decision as to whether this order should be accepted.
Wallace Company manufactures a variety of valves and fittings used in industrial plumbing that are sold to customers in other Canadian provinces. Currently, the company is operating at about 70 percent capacity, and is quite profitable. Tudor Industries, located in Wales, has approached management to purchase 120,000 units of a pressure valve, and is prepared to pay $21 per valve. Wallace's product cost for each pressure valve includes the following: Direct materials $6 Direct labour Variable manufacturing overhead Fixed manufacturing overhead Total manufacturing cost 3 6. $23 There will be no sales commission costs on this order, as it has come directly from management, and Tudor will cover all shipping costs. Currently, the pressure valves are sold for $30 to its other customers. Production management believes that it can handle the Tudor order without disrupting its current scheduled production. The order, however, will require an additional fixed overhead cost of $48,000 for supervision and clerical costs. Required: Prepare an analysis to support whether Wallace should accept this special order or not. Show all calculations. Identify at least two strategic qualitative factors that Wallace should consider in its decision as to whether this order should be accepted.
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter20: Inventory Management: Economic Order Quantity, Jit, And The Theory Of Constraints
Section: Chapter Questions
Problem 16E
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Transcribed Image Text:B. Wallace Company manufactures a variety of valves and fittings used in industrial
plumbing that are sold to customers in other Canadian provinces. Currently, the
company is operating at about 70 percent capacity, and is quite profitable. Tudor
Industries, located in Wales, has approached management to purchase 120,000 units of
a pressure valve, and is prepared to pay $21 per valve.
Wallace's product cost for each pressure valve includes the following:
Direct materials
$ 6
Direct labour
8
Variable manufacturing overhead
Fixed manufacturing overhead
Total manufacturing cost
3
$23
There will be no sales commission costs on this order, as it has come directly from
management, and Tudor will cover all shipping costs. Currently, the pressure valves are
sold for $30 to its other customers. Production management believes that it can handle
the Tudor order without disrupting its current scheduled production. The order, however,
will require an additional fixed overhead cost of $48,000 for supervision and clerical
costs.
Required:
Prepare an analysis to support whether Wallace should accept this special order or not.
Show all calculations. Identify at least two strategic qualitative factors that Wallace
should consider in its decision as to whether this order should be accepted.
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