Group 3. Givaa Silver Givaa manufactures silver rings. Management estimates that during the coming quarter the company will operate at 80% of capacity. Because the company wants higher utilization of plant capacity, they are considering a special order. You are the Marketing Manager for Givaa and have received two proposals for special order. The first order is from Party A which wants to market a silver ring similar to Givaa under Party A's brand. Party A has offered to pay Rs. 575 per ring for 20,000 rings to be shipped by end of quarter. The cost data for Givaa which is similar to Party A's order cost is as follows: Particulars Amount Regular selling price per unit 900 Cost per unit: Raw material 250 Direct Labour (0.5 hr @ 600 per hour) 300 Overheads (0.25 machine hour @ Rs. 400) 100 According to specification provided by Party A, the ring will require lower quality silver. Hence raw material will only cost Rs. 225 per ring. The remaining costs will be the same as specified above. The second order is received from Party B for 7500 rings at Rs. 750 per ring. These rings have a different design from the existing design of Givaa. The estimated cost of this ring is as follows: Particulars Amount Raw material 325 Direct labour (0.5 hr @ 600 per hour) 300 Overheads (0.5 machine hour @ Rs. 400) 200 In additional a one time designing set-up cost of Rs. 150,000 is needed to be paid for this order. Also a special device needs to be ordered at Rs. 250,000. This device will be discarded post the completion of this special order. Givaa's manufacturing capabilities are limited to total machine hours available. The normal plant capacity is 90,000 machine hours per year. The overheads allocated (Rs. 400 per hour) comprise of both variable and fixed overheads in ratio 4:6 respectively. Givaa will have this entire quarter to work on the special order. Management does not expect any repeat sales from either of the two parties. Also, Givaa does not have a policy of subcontracting any portion of an order to ensure quality delivery. You have to recommend if either of the special order should be accepted. Justify your answer and show calculation. What are some of the non-financial aspects you may want to consider?

Group 3. Givaa Silver Givaa manufactures silver rings. Management estimates that during the coming quarter the company will operate at 80% of capacity. Because the company wants higher utilization of plant capacity, they are considering a special order. You are the Marketing Manager for Givaa and have received two proposals for special order. The first order is from Party A which wants to market a silver ring similar to Givaa under Party A's brand. Party A has offered to pay Rs. 575 per ring for 20,000 rings to be shipped by end of quarter. The cost data for Givaa which is similar to Party A's order cost is as follows: Particulars Amount Regular selling price per unit 900 Cost per unit: Raw material 250 Direct Labour (0.5 hr @ 600 per hour) 300 Overheads (0.25 machine hour @ Rs. 400) 100 According to specification provided by Party A, the ring will require lower quality silver. Hence raw material will only cost Rs. 225 per ring. The remaining costs will be the same as specified above. The second order is received from Party B for 7500 rings at Rs. 750 per ring. These rings have a different design from the existing design of Givaa. The estimated cost of this ring is as follows: Particulars Amount Raw material 325 Direct labour (0.5 hr @ 600 per hour) 300 Overheads (0.5 machine hour @ Rs. 400) 200 In additional a one time designing set-up cost of Rs. 150,000 is needed to be paid for this order. Also a special device needs to be ordered at Rs. 250,000. This device will be discarded post the completion of this special order. Givaa's manufacturing capabilities are limited to total machine hours available. The normal plant capacity is 90,000 machine hours per year. The overheads allocated (Rs. 400 per hour) comprise of both variable and fixed overheads in ratio 4:6 respectively. Givaa will have this entire quarter to work on the special order. Management does not expect any repeat sales from either of the two parties. Also, Givaa does not have a policy of subcontracting any portion of an order to ensure quality delivery. You have to recommend if either of the special order should be accepted. Justify your answer and show calculation. What are some of the non-financial aspects you may want to consider?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter20: Inventory Management: Economic Order Quantity, Jit, And The Theory Of Constraints

Section: Chapter Questions

Problem 17E

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Transcribed Image Text:Group 3. Givaa Silver Givaa manufactures silver rings. Management estimates that during the coming quarter the company will operate at 80% of capacity. Because the company wants higher utilization of plant capacity, they are considering a special order. You are the Marketing Manager for Givaa and have received two proposals for special order. The first order is from Party A which wants to market a silver ring similar to Givaa under Party A's brand. Party A has offered to pay Rs. 575 per ring for 20,000 rings to be shipped by end of quarter. The cost data for Givaa which is similar to Party A's order cost is as follows: Particulars Amount Regular selling price per unit 900 Cost per unit: Raw material 250 Direct Labour (0.5 hr @ 600 per hour) 300 Overheads (0.25 machine hour @ Rs. 400) 100 According to specification provided by Party A, the ring will require lower quality silver. Hence raw material will only cost Rs. 225 per ring. The remaining costs will be the same as specified above. The second order is received from Party B for 7500 rings at Rs. 750 per ring. These rings have a different design from the existing design of Givaa. The estimated cost of this ring is as follows: Particulars Amount Raw material 325 Direct labour (0.5 hr @ 600 per hour) 300 Overheads (0.5 machine hour @Rs. 400) 200 In additional a one time designing set-up cost of Rs. 150,000 is needed to be paid for this order. Also a special needs to ordered at Rs. 250,000. This device will be discarded post the completion of this special order. Givaa's manufacturing capabilities are limited to total machine hours available. The normal plant capacity is 90,000 machine hours per year. The overheads allocated (Rs. 400 per hour) comprise of both variable and fixed overheads in ratio 4:6 respectively. Givaa will have this entire quarter to work on the special order. Management does not expect any repeat sales from either of the two parties. Also, Givaa does not have a policy of subcontracting any portion of an order to ensure quality delivery. You have to recommend if either of the special order should be accepted. Justify your answer and show calculation. What are some of the non-financial aspects you may want to consider?

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