Bold Rapid produces a competitive brand of shoes and sells them to retailers for $225 per pair. The cost per pair is $185 based on an annual volume of 5,000 pairs. Direct labour ($75 per pair) 375,000 Direct materials ($60 per pair) 300,000 Overhead Fixed 100,000 Variable ($0.40 per direct labour dollar) 150,000 250,000 Total costs 925,000 Annual output 5,000 Cost per pair $185 Shoes kingdom, a discount footwear store, currently purchased 500 pairs of shoes from Bold Rapid. Shoes kingdom has asked to purchase 1,000 pairs of shoes under a private label, at a price of $200 per pair. The shoes would be identical to those normally sold for $225. Bold Rapid believes that if it accepts the order, Shoes kingdom will cancel its usual order of 500 pairs. These sales cannot be recouped elsewhere. It this special order is accepted, the direct labour hours for the additional 500 shoes would have to be paid at overtime rates (at 1 1⁄2 times the base rate). Analysis shows that variable overhead varies with total labour dollars at the rate of $0.40 per direct labour dollar. Required: Should Bold Rapidaccept the special order from Shoes kingdom? (b) Identify and explain 5qualitative factors that Bold Rapid should consider while evaluating such decision.
Bold Rapid produces a competitive brand of shoes and sells them to retailers for $225 per pair. The cost per pair is $185 based on an annual volume of 5,000 pairs.
|
Direct labour ($75 per pair) |
|
375,000 |
|
Direct materials ($60 per pair) |
|
300,000 |
|
|
|
|
|
Fixed |
100,000 |
|
|
Variable ($0.40 per direct labour dollar) |
150,000 |
250,000 |
|
Total costs |
|
925,000 |
|
Annual output |
|
5,000 |
|
Cost per pair |
|
$185 |
Shoes kingdom, a discount footwear store, currently purchased 500 pairs of shoes from Bold Rapid. Shoes kingdom has asked to purchase 1,000 pairs of shoes under a private label, at a price of $200 per pair. The shoes would be identical to those normally sold for $225.
Bold Rapid believes that if it accepts the order, Shoes kingdom will cancel its usual order of 500 pairs. These sales cannot be recouped elsewhere. It this special order is accepted, the direct labour hours for the additional 500 shoes would have to be paid at overtime rates (at 1 1⁄2 times the base rate). Analysis shows that variable overhead varies with total labour dollars at the rate of $0.40 per direct labour dollar.
Required:
- Should Bold Rapidaccept the special order from Shoes kingdom?
- (b) Identify and explain 5qualitative factors that Bold Rapid should consider while evaluating such decision.
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