BeLuxe Company manufactures a variety of natural skin care products that are used in spas across Canada. Its most popular product is its “Cleopatra Gold” serum, made with locally produced ingredients. Currently, the company is operating at about 80 percent capacity, and is quite profitable. BeLuxe has been approached by a distributor in South Korea, asking to purchase 8,000 units of the serum, at a price of $40 per unit. BeLuxe’s product cost for each unit of Cleopatra Gold serum includes the following: Direct materials $ 16 Direct labour 10 Variable manufacturing overhead 8 Fixed manufacturing overhead 15 Total manufacturing cost $49 BeLuxe will save $2 per unit in sales commission costs on this order as it has come directly from the customer, and the distributor will cover all shipping costs. Currently, the serum is sold for $65 to its other customers. Production management believes that it can handle the special order without disrupting its current scheduled production. The order, however, will require an additional fixed overhead cost of $50,000 for supervision and clerical costs. Required: Prepare an analysis to support whether BeLuxe should accept this special order or not. Show all calculations. Identify at least two strategic qualitative factors that BeLuxe should consider in its decision as to whether this order should be accepted.
BeLuxe Company manufactures a variety of natural skin care products that are used in spas across Canada. Its most popular product is its “Cleopatra Gold” serum, made with locally produced ingredients. Currently, the company is operating at about 80 percent capacity, and is quite profitable. BeLuxe has been approached by a distributor in South Korea, asking to purchase 8,000 units of the serum, at a price of $40 per unit.
BeLuxe’s product cost for each unit of Cleopatra Gold serum includes the following:
|
Direct materials |
$ 16 |
|
Direct labour |
10 |
|
Variable manufacturing |
8 |
|
Fixed manufacturing overhead |
15 |
|
Total |
$49 |
BeLuxe will save $2 per unit in sales commission costs on this order as it has come directly from the customer, and the distributor will cover all shipping costs. Currently, the serum is sold for $65 to its other customers. Production management believes that it can handle the special order without disrupting its current scheduled production. The order, however, will require an additional fixed overhead cost of $50,000 for supervision and clerical costs.
Required:
Prepare an analysis to support whether BeLuxe should accept this special order or not. Show all calculations. Identify at least two strategic qualitative factors that BeLuxe should consider in its decision as to whether this order should be accepted.
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