2.      Euphonium Ltd. has an opportunity to obtain a new contract for the production of a new valve. The valve requires 200 hours of processing on machine A, which is already working at full capacity on the production of another product. There is thus no way in which production of the valve can be accommodated unless production of the other product is reduced. The lost contribution from the displaced product amounts to £500. In addition, the variable costs of the new valve amount to £1500. (i)       What price is the minimum that should be accepted? (ii)       What implications are there for the company, in both the short term and the long term, of accepting this special order?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question

2.      Euphonium Ltd. has an opportunity to obtain a new contract for the production of a new valve. The valve requires 200 hours of processing on machine A, which is already working at full capacity on the production of another product. There is thus no way in which production of the valve can be accommodated unless production of the other product is reduced. The lost contribution from the displaced product amounts to £500. In addition, the variable costs of the new valve amount to £1500.

(i)       What price is the minimum that should be accepted?

(ii)       What implications are there for the company, in both the short term and the long term, of accepting this special order?

 

Expert Solution
steps

Step by step

Solved in 4 steps with 1 images

Blurred answer
Knowledge Booster
Accounting for Property, Plant and Equipment
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education