A company,currently operating at full capacity, manufactures and sellssaucepans at £2 each. Current volume is 100,000 pans per annum withthe following cost structure.
Operating Statementfor year
£
Sales (100,000 at£2) 200,000
less MarginalCost
Labour 80,000
Material 50,000 130,000
=Contribution 70,000
FixedCosts 30,000
=Netprofit £40,000
An opportunity has arisen to supply an additional 30,000 pans perannum at £1.18 each.
Acceptance of this order would incur extra fixed costs of £8000 perannum for the hire for additional machinery and the payment of anovertime premium of 20% for the extra direct Labour required.Should this order by accepted?
What other factors need to be considered?
