The
Gold Plus
Company manufactures windows. Its manufacturing plant has thecapacity to produce
6,000
windows each month. Current production and sales are
5,000
windows per month. The company normally charges
$200
per window.
Variable costs that vary with number of units produced | |
Direct materials | $150,000 |
|---|
Direct manufacturing labor | 75,000 |
|---|
Variable costs (for setups, materials handling, quality control,and so on) that vary with number of batches, 200 batches × $1,000per batch | 200,000 |
|---|
Fixed manufacturing costs | 200,000 |
|---|
Fixed marketing costs | 25,000 |
|---|
Total costs | $650,000 |
|---|
Gold Plus
has just received a special? one-time-only order for
1,000
windows at
$175
per window. Accepting the special order would not affect the?company's regular business or its fixed costs.
Gold Plus
makes windows for its existing customers in batch sizes of
25
windows
?(200
batches? ×
25
windows per batch? =
5,000
?windows). The special order requires
Gold Plus
to make the windows in
10
batches of
100
windows.
1. | Should Gold Plus accept this special? order? Show your calculations. |
2. | Suppose plant capacity were only 5,500 windows instead of6,000 windows each month. The special order must either be taken in fullor be rejected completely. ShouldGold Plus accept the special? order? Show your calculations. |
3. | As in requirement? 1, assume that monthly capacity is 6,000 windows.Gold Plus is concerned that if it accepts the special? order, its existingcustomers will immediately demand a price discount of$5 in the month in which the special order is being filled. They wouldargue thatGold Plus?'s capacity costs are now being spread over more units and thatexisting customers should get the benefit of these lower costs.ShouldGold Plus accept the special order under these? conditions? Show yourcalculations. |
