Management Decision Making Sydney Industries Limited manufactures portable record players at a unit cost of: Direct Labour $30 Direct Materials $40 Variable Factory Overhead $24 Fixed Factory Overhead $36 The company sells each record player for $160 and is presently operating at 75% of its capacity of 50,000 units per year. The company has received a special order at a price of $106 per unit from a mail order firm for 1,000 units per month for one year only. The units sold to the mail order firm would be identical to the company’s regular record players except for a special nameplate. Sydney Industries would have to buy a new machine for $35,000 to produce the special nameplate. The machine will have no alternative use or residual value at the end of the year. The sales by the mail order firm would not affect the company’s regular sales because of the different label and different markets involved. Required: Show workings. (a) Determine whether or not the company should accept the special order. (b) What is the opportunity cost involved and explain the effect the opportunity cost would have on the above result?
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Management Decision Making
Sydney Industries Limited manufactures portable record players at a unit cost of: Direct Labour $30 Direct Materials $40 Variable Factory Overhead $24 Fixed Factory Overhead $36
The company sells each record player for $160 and is presently operating at 75% of its capacity of 50,000 units per year. The company has received a special order at a price of $106 per unit from a mail order firm for 1,000 units per month for one year only. The units sold to the mail order firm would be identical to the company’s regular record players except for a special nameplate. Sydney Industries would have to buy a new machine for $35,000 to produce the special nameplate. The machine will have no alternative use or residual value at the end of the year. The sales by the mail order firm would not affect the company’s regular sales because of the different label and different markets involved.
Required: Show workings. (a) Determine whether or not the company should accept the special order.
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(b) What is the opportunity cost involved and explain the effect the opportunity cost would have on the above result?
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