Guilford Packaging Company is a leading manufacturer of
cardboard boxes and other product packaging solutions. One of the
company’s major product lines is custom-printed cake boxes that are
sold to some of the country’s bestknown bakeries at a price of
$0.50 per box. To maintain its high-quality image, Guilford uses a
thick premium coated paper for all of its cake boxes. Based on
annual production of 1,000,000 boxes, Guilford’s cost for producing
a box is as follows:
Paper | $0.16 | |
Ink | 0.03 | |
Direct labor | 0.04 | |
Variable overhead | 0.09 | |
Fixed overhead | 0.09 | |
Total cost per box | $0.41 |
Andrea Borden, a recent graduate of the Culinary Institute of
America, is opening a new bakery in her hometown. She recently
contacted Brad Lail, Guilford’s top salesperson, about purchasing
cake boxes for her new store. Brad described Guilford’s boxes,
emphasizing the high-quality paper and the unique printing process
the company uses. Andrea is looking for ways to lower her operating
costs, so after hearing Brad describe Guilford’s boxes, she told
him that all she needed was a simple, unprinted box. Andrea also
told Brad that she needs 11,600 boxes and is willing to pay $0.26
per box.
(c) After visiting with Andrea, Brad received a
fax from one of London’s top bakeries. The bakery’s normal box
supplier suffered some fire damage and is unable to ship the
bakery’s order of 11,600 boxes this month. The bakery’s owner is
asking if Guilford can fill a onetime rush order of 11,600 boxes
printed with the bakery’s logo. The bakery is willing to pay a 10%
price premium to expedite the order. If Guilford accepts the order,
it will incur $824 in export taxes and shipping.
Calcuate the Profit on special order.
Profit on special order | $ |
Answer | Sale Price of cake box | $0.50 | |||
Annual Production | 100000 boxes | ||||
Cost of producing one cake box | |||||
Paper | $0.16 | ||||
Ink | $0.03 | ||||
Total Direct Material | $0.19 | ||||
Direct Labour | $0.04 | ||||
Variable Overhead | $0.09 | ||||
Total Variable cost of producing one cake box | $0.32 | ||||
Fixed Overhead absorption rate | $0.09 | ||||
Total Cost per cake box | $0.41 | ||||
1 | Profit/Loss on Order Proposal from Andrea | ||||
Boxes | 11600 boxes | ||||
Sales | $0.26 per box | $ 3,016 | |||
less | Variable Cost | $0.32 per box | $ 3,712 | ||
Profit/Loss | $ (696) | ||||
2 | Profit/Loss on special order from London's top bakery | 11600 boxes | |||
Sale price at 10% premium over and above $0.50 | $0.55 | $6,380 | |||
less | Variable Cost | $0.32 | $3,712 | ||
less | Additional export taxes and shipping cost for special order | $824 | |||
Profit/Loss on special order | $1,844 | ||||
Fixed Cost of $0.09 would remain unchanged irrespective of speical order hence irrelevant for calculation of special order | |||||
Hence it can be seen that special order from London bakery is fetching a profit of $1844 to Guilford Packaging Company | |||||
So the company should go for the special order from London Bakery | |||||
Guilford Packaging Company is a leading manufacturer of cardboard boxes and other product packagi...
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