Question

The Goal One Company manufactures windows. Its manufacturing plant has the capacity to produce 20,000 windows each month. Current production and sales are 15,000 windows per month. The company normally charges $150 per window.

WYACCOUNTIYLAW TUMEWUIK. Ullapei 1 1 0f 9 (o complete) w Data Table windows. Its manufacturing plant has the 15,000 windows per month. The compan Variable costs that vary with number of units produced Direct materials 300,000 150,000 of this special order? Show your calculatio Direct manufacturing labor Variable costs (for setups, materials handling, quality control and so on) that vary with number of batches, 300 batches x $1,250 per batch Fixed manufacturing costs art by showing the computation of the com its with no change, make sure to enter "0" and then calculate th 375,000 15,000 55,000 Fixed marketing costs Without ne-Time Only pecial Order 000 Windows Total costs 895,000 Print Done Done

Goal One has just received a special one-time order for 5,000 windows at $125 per window. Accepting the special order would not affect the company's regular business or it's fixed costs. Goal One makes windows die its existing customers in batch sizes I'd 59 windows (300 batches x 50 windows per batch = 100 batches if 50 windows)

1. Should Goal One accept this special order. Show your calculations.

Begin by completing an analysis, and start by showing the computation of the company's operating income without the special order. Next, calculate operating income with the special order, and then calculate the differences between the two columns.

2. Suppose plant capacity were only 17,500 windows instead if 20,000 windows each month. The special order must either be taken in full or be rejected completely. Should Goal One accept the special order? Show your calculations

3. As in requirement 1, assume that monthly capacity is 20,000 windows. Goal One is ckncer.ed that if it accepts the special order, its existing customer will immediately demand a price discount of $15 in the month in which the special order is being filled. They would argue that Goal One's capacity costs are now being spread over more units and that existing customers should get the benefit if these lower costs. Should Goal One accept the special order under these conditions? Show your calculations.

Answer 1

1. Should Goal One accept this special order. Show your calculations. a. Computation of Variable Costs per Unit / Batch. For 15,000 Particulars Base Units Direct Materials $ 3,00,000 15,000 Units Direct Manufacturing Labor $ 1,50,000 15,000 Units Other Variable Costs $ 3,75,000 300 Batches Per Unit/ Batch 20 $ 10 $ 1,250 b. Calculation of the operating income without the special order. Particulars Amount ($) Calculation Sales Revenue $ 22,50,000 15,000 Windows @ $ 150 per Unit Less : Variable Costs Direct Materials $ 3,00,000 15,000 Windows @ $ 20 per Unit Direct Manufacturing Labor $ 1,50,000 15,000 Windows @ $ 10 per Unit Other Variable Costs $ 3,75,000 300 Batches @ $ 1,250 per Batch Total Variable Costs $ 8,25,000 Contribution $ 14,25,000 Less : Fixed Costs Manufacturing Costs Marketing Costs Total Fixed Costs 15,000 55,000 70,000 Given Given Net Income $ 13,55,000

c. Calculation of the operating income with the special order. Particulars Amount ($) Calculation Sales Revenue $ 22,50,000 15,000 Windows @ $ 150 per Unit $ 6,25,000 5,000 Windows @ $ 125 per Unit Total Revenue $ 28,75,000 Less : Variable Costs Direct Materials $ Direct Manufacturing Labor $ Other Variable Costs $ Total Variable Costs $ 4,00,000 20,000 Windows @ $ 20 per Unit 2,00,000 20,000 Windows @ $ 10 per Unit 5,00,000 400 Batches @ $ 1,250 per Batch 11,00,000 Contribution $ 17,75,000 A Less : Fixed Costs Manufacturing Costs Marketing Costs Total Fixed Costs 15,000 55,000 70,000 Given Given A A Net Income $ 17,05,000 Decision : Accepting the Special Order, Increases the Net Income by $ 350,000. So, it is advisable to accept the New Order. 2. Suppose plant capacity were only 17,500 windows instead if 20,000 windows each month. If the New Order is not accepted, then Net Income will be $ 1,355,000 as computed above. IF the New Order is to be accepted when the plant capacity is 17,500 windows, then the outside sales will be 12,500 units and the special order sales will be 5,000 units.

Calculation of the operating income. Particulars Amount ($) Sales Revenue $ 18,75,000 $ 6,25,000 Total Revenue $ 25,00,000 Calculation 12,500 Windows @ $ 150 per Unit 5,000 Windows @ $ 125 per Unit Less : Variable Costs Direct Materials Direct Manufacturing Labor Other Variable Costs Total Variable Costs $ $ $ $ 3,50,000 1,75,000 4,37,500 9,62,500 17,500 Windows @ $ 20 per Unit 17,500 Windows @ $ 10 per Unit 350 Batches @ $ 1,250 per Batch Contribution $ 15,37,500 A Less : Fixed Costs Manufacturing Costs Marketing Costs Total Fixed Costs 15,000 55,000 70,000 Given Given A A Net Income $ 14,67,500 Decision : Accepting the Special Order, Increases the Net Income by $ 112,500. So, it is advisable to accept the New Order even when the plant capacity is 17,500 Units.

3. Calculation of Net Income when Purchase Discount of $ 15 to existing customers is given. Particulars Amount ($) Calculation Sales Revenue $ 20,25,000 15,000 Windows @ $ 135 per Unit $ 6,25,000 5,000 Windows @ $ 125 per Unit Total Revenue $ 26,50,000 Less : Variable Costs Direct Materials Direct Manufacturing Labor Other Variable Costs Total Variable Costs $ 4,00,000 20,000 Windows @ $ 20 per Unit $ 2,00,000 20,000 Windows @ $ 10 per Unit $ 5,00,000 400 Batches @ $ 1,250 per Batch $ 11,00,000 Contribution $ 15,50,000 Less : Fixed Costs Manufacturing Costs Marketing Costs Total Fixed Costs hth 15,000 55,000 70,000 Given Given Net Income $ 14,80,000 Decision : Accepting the Special Order, Increases the Net Income by $ 125,000. So, it is advisable to accept the New Order even when purchase discount of $ 15 is given to existing customers and 5,000 units of New Order is accepted @ $ 125 per Unit.