(a)GEMhas an opportunity to sell 10 000 units to an overseas customer. Import duties and other special costs associated with this order would total $42 000. The only selling costs that would be associated with the order would be a shipping cost of $9.00 per unit. What would be the minimum acceptable unit price for GEMto consider this order? (hint: GEMwould not accept the orderif it would reduce the company’s profit) (b)The company has 200 units of Flickson hand that were produced two months ago. Due to blemishes on the units, it will be impossible to sell these units at the normal price. If the company wishes to sell them through regular sales channels, what would be the relevant cost for setting the minimum price? Explain. c) All future costs are relevant in decision making.” Do you agree? Explain.
GEMLimited has a single product Flicks. The company normally produces and sells 80,000 units of Flickseach year at a price of $240 per unit. The company’s unit costs at this level of activity are as follow:Direct material$57.00Direct labour60.00Variable manufacturing overhead16.80Fixed manufacturing overhead30.00Variable selling and administrative costs10.20Fixed selling and administrative costs27.00Total unit cost$201.00GEMhas sufficient capacity to produce 100 000 units of Flicksa year without any increase in fixed manufacturing
Required:
(a)GEMhas an opportunity to sell 10 000 units to an overseas customer. Import duties and other special costs associated with this order would total $42 000. The only selling costs that would be associated with the order would be a shipping cost of $9.00 per unit. What would be the minimum acceptable unit price for GEMto consider this order? (hint: GEMwould not accept the orderif it would reduce the company’s profit)
(b)The company has 200 units of Flickson hand that were produced two months ago. Due to blemishes on the units, it will be impossible to sell these units at the normal price. If the company wishes to sell them through regular sales channels, what would be the relevant cost for setting the minimum price? Explain.
c) All future costs are relevant in decision making.” Do you agree? Explain.
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